Summary
The largest pension fund in the Teamsters union system, the Central States, Southeast and Southwest Areas Pension Funds is in the "red zone," or in critical status. This disclosure comes in a letter from Thomas C. Nyhan, executive director of the Central States, to participants in the plan. In the letter, Nyhan tries to assure nervous Teamsters that just by "receiving this notice does not mean that your adjustable benefits have been eliminated or reduced." Nyhan says that will come in a separate notice. What is stunning is that Central States' financial condition has worsened so rapidly in the wake of UPS's one-time $6.1 billion cash infusion into Central States in January. Where did that money go? What is Central States investing in?
Analysis
Even by Teamsters union pension plan accounting standards, this is stunning. A mere four months after receiving a one-time $6.1 billion cash infusion from UPS (in exchange for withdrawing from the plan), the Central States, Southeast and Southwest Areas Pension Funds is admitting to participants that its plan is in "critical" financial condition.
This so-called "Red Zone" condition notification is a requirement of the Pension Protection Act of 2006, which the Teamsters helped lobby through Congress.
Once this condition is established, the fund's trustees have one of two options--neither good. One is to select a "primary schedule" to increase employers' contribution rates to the plan by 8 percent annually for five years. Given the current financial state of the trucking industry (which funds the majority of these multiemployer plans), that is hardly a favorable condition.
The other is to go on a "default schedule," which requires a smaller increase in the contribution rate. With that comes a reduction in benefits to members.
This has hundreds of thousands of members of the 1.4 million-member Teamsters union sweating bullets.
Naturally, most of the time the "primary schedule" option is chosen. But that is really a Catch-22. Because all the trucking industry is struggling under the weight of $4-a-gallon diesel and a soft freight environment, any increase in the pension contribution will only worsen truckers' bottom lines. This could lead to bankruptcies, which would even worse the burden of the survivors of these multiemployer plans.
It's little wonder that UPS executives jumped at the chance to bolt from this shaky Central States' plan. That $6.1 billion it paid to withdraw from these plans is looking more and more like the best money UPS ever spent.
