The U.S. Treasury Department, through Special Master Kenneth Feinberg, has rejected Central States Pension Fund’s proposal to cut benefits for 270,000 Teamsters retirees, often by half, saying the plan presented to the government failed to meet the requirements of a 2014 law.
Since September, Treasury has been reviewing the proposal from the largest Teamsters pension fund, to make cuts starting July 1 that average about 50% for retirees under age 75. CSPF told Treasury cuts were needed for survival because its funds could run out in a decade or less. The fund paid out $2 billion more than it collected last year and currently had about $16 billion in assets, based on its latest report. It pays $3.46 in retirement benefits for every dollar paid by active workers.
CSPF was required by the 2014 Multiemployer Pension Reform Act to submit a rescue plan due to its troubled status, which includes more retirees than active workers paying into the plan. Feinberg previously handled claims from Sept. 11 victims and those affected by the BP Gulf oil spill.
“The Central States Pension Fund Trustees will carefully consider the most appropriate next step,” a statement from the fund said, without giving a timetable for action.
“Whatever Central States plans to do next, our doors are open,” Feinberg said. “That will be up to Central States.”
Feinberg said there were three major flawed assumptions that resulted in the decision that was laid out in a 10-page letter (see the letter on page 3) to the fund and in a conference call with reporters. One was that the fund’s assumptions about future insolvency weren’t properly estimated. In addition, he said that the proposal didn’t make the case that the cuts would be distributed equitably. The other flaw, he said, was that the fund’s communication to retirees about the plan wasn’t readily understandable.
“While painful, such a pension rescue plan is the only realistic way possible to save the fund from financial failure and help ensure that we are able to continue to pay benefits to all Central States participants in the future,” Central States told members when its application was filed.
Central States’ approach sparked thousands of incensed comments from union retirees, including some who have said they could lose their savings or homes and could not afford adequate food or medical benefits.
Teamsters General President Jim Hoffa said in a statement, “This decision means that there won’t be any cuts to retirees’ pensions this July or the foreseeable future. We will find a solution to this problem that will allow members and retirees to continue to retire with dignity.”
“The Teamsters will continue its legislative efforts to repeal MPRA and find a viable solution to the pension crisis,” the union statement said.
There are two legislative proposals. One would prevent the cuts altogether. A second one would change the voting process on the plan.
The Pension Accountability Act from Sen. Robert Portman (R-Ohio) and Rep. David Joyce (R-Ohio) would change that process so that the tally is based on those who vote on the reduction proposal. Currently, the law counts those who don’t vote as supporters of a plan. The other measure is the Keep Our Pension Promises Act, sponsored by Democratic Presidential candidate Sen. Bernie Sanders and Rep. Marcy Kaptur (D-Ohio), which would block any cuts.
Neither bill has been granted a hearing.
The fund in a web posting urged members of Congress to tackle pension funding issues that have been previously ignored and urged participants “to demand legislative action.” They targeted the union and others who urged the rejection to “move beyond talk” and work on influencing legislators to act.
It also reminded members that in the absence of action, their pensions could be reduced to “virtually nothing” in the future.
In a letter to Senate leaders of both parties, Treasury Secretary Jack Lew said, “We urge Congress to consider carefully the issues that have emerged. Finding a balanced solution will require painful choices, but we must work together to preserve the promise of retirement security that these workers have bargained for and earned.”
In addition to comments about the overall failure to reduce benefits equitably, Feinberg told Central States specifically that the fund’s plan to implement cuts for UPS Inc. workers wasn’t equitable. UPS last month said that if the plan by Central States went forward that the package carrier would have to pay at least $3.3 billion in benefits to make up for cuts imposed by the fund. A total of 43,000 UPS retirees still are receiving benefits from the fund.
UPS exited the fund in 2007 by paying $6.1 billion, but the terms of that departure left the company exposed in the event of future benefit reductions.
Feinberg said that the action regarding Central States did not mean that proposals received from other pension funds also would be rejected.
Feinberg said the financial assumptions fell short because they used improper estimates of future returns on investment, excluded relevant economic data and miscalculated how returns on investment would affect the plan’s overall assets over time.
The Central States letters to retirees weren’t readily understandable because the language was too technical and relied on unclear cross-referencing from one document to another, Feinberg said. He noted a section that contained a 98-word sentence.
He noted that even though the law is complex, Central States should have taken “the time and care to explain those proposed reductions in a manner that can be understood by an average plan participant.”
Active workers also would have been affected since Central States proposed to raise the minimum allowable retirement age for full benefits to 65 from 62 and reduce future pension levels.