I posted this because it pisses me off that the people who destroyed our pensions are still running the show!
http://www.hudson.org/content/researchattachments/attachment/808/dfr_pension_2010_highres.pdf
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
“You deserve to spend your retirement doing whatever makes you happy and fulfilled. But to do that, you’ll need monthly income you can rely on.” These are the words of wisdom provided by the International Brotherhood of Teamsters to members on the 401(k) section of its Web site. Unfortunately, the union is failing badly in its promise to its workers and nowhere is the chronic underfunding of union pensions more evident than with the Teamsters union.
Over 40 Teamsters-affiliated pension funds are now in either critical or endangered status, putting in severe jeop- ardy the retirement plans of three-quarters of a million
union members—about 40 percent of current rank and file and retirees.32 Using the latest comprehensively available data (predominantly from the first half of 2007)—a time when global stock markets remained very strong—shows that even then these pension funds had a deficit of over $36 billion (not far shy of Greece’s 2009 budget deficit). This equates to a funding ratio of just over 48 percent.33 It is like- ly that further deterioration has occurred since this time.
An example using two major Teamster affiliated pension plans—the Central States Fund and the Western Conference Teamsters pension—highlights why the unions’ tendency to blame all the problems on the economy and the stock mar- kets holds very little water.
At the end of 2006, the Central States Pension Fund cov- ered over 451,000 workers, with about 155,000 of them cur- rently employed. In 2007, UPS, the parcel delivery company, bought out the contracts for 44,000 of those workers, paying the fund $6.1 billion and shrinking the number of current workers covered by the plan to about 106,000. The cash infu- sion, however, was not enough, and the fund determined it was in critical status in 2008.34 At the end of the first quarter of 2009 the fund had $15.66 billion in assets—down from $17.36 billion at the end of 2008 and $20.67 billion in 2007.35 Given the fund’s liabilities were more than $44 billion in 2007, the current funding deficit could be close to $30 bil- lion. The dire outlook was recently acknowledged by the fund’s Executive Director Thomas C. Nyhan in testimony before the Senate. He suggested that absent corrective action, the fund could become insolvent in 10 to 15 years.36
In contrast, the Western Conference Teamsters pension, with over 500,000 participants, was in no such difficulty and anticipates few, if any, problems in the future. In 2007, its funding ratio was 80 percent, and according to the annual funding notice from the fund’s actuary, it was 97 percent funded in 2008.37 It has dropped back to an 85 percent fund- ing level in 2009, but reasonably expects to be fully funded without any extraordinary efforts.
There are three major differences between these funds. First, the Central States Fund is managed by J.P. Morgan and Goldman Sachs, a holdover from a court decision made in response to the late Jimmy Hoffa’s mismanagement of Teamster pension funds decades ago. (Hoffa was president
of the international union in 1958-1971.) In contrast, the Western Conference is controlled by the union and partici- pating employers. It is tempting for unions and their sup- porters to blame the banks for poor performance, except that the same problems have plagued union pensions that are not controlled by court-appointed banks.
Another difference is investment strategy. Over two- thirds of the Central States investments have generally been in stocks, making its fund value heavily dependent on mar- ket performance.38 The Western Conference funds are slant- ed towards more conservative, diversified assets. In 2004, the Western Conference trustees held 56 percent of the fund in government and corporate bonds, 39 percent in stock, and 5 percent in real estate.39 The Central States Fund’s recent fil- ings list 1.5 percent of their assets held in “other, primarily real estate related” sources.40 But this is a disingenuous sta- tistic, given that Central States’ fund holds 33 percent of its assets in “fixed income” investments.41 Fixed income securi- ties include real estate investment trusts and GNMA mort- gage backed securities. It is therefore uncertain how much of the fund is and was invested in real estate, an ironic state of affairs given that the current pension structure came about as a result of Central States’ historical real estate investments maintained by organized crime.
Arguments have been made that the bank-managed pen- sion fund has a bias towards high-risk, high-reward invest- ments, rather than the less risky investments the Western Conference engages in. But saying that the trustees have no capacity to suggest or require more conservative investment strategies is dubious. It is far more likely that the trustees have been in favor of the high-risk strategy in the hope of high rewards. After all, the pensions on the line are for rank- and-file members, not the trustees.
The third difference between the funds is one that Central States cannot blame on the economy, the fiduciary managers, or employers. In 2001-03, the Central States struggled with poor performance and a falling funding percentage. There were serious concerns that the PBGC would be forced to take over the fund, reducing guaranteed pensions to the maximum of $12,870 a year for a worker with 30 years of service.42
This was averted only by the Central States and its con- tributing employers developing a rescue plan that involved
reducing future accruals of benefits, shuffling health and welfare benefit contributions to the pension plan, and re- questing the IRS to waive minimum funding standards for a decade.43 This waiver was contingent on the Central States maintaining a stable funding ratio, which they failed to do, andthefundappliedforasecondwaiverin2008.44
In 2003, the Western Conference embarked on a similar recovery plan. Poor economic performance had caused $5 billion in losses that required the fund to cut accruals for future benefits.45 They expected current benefits to soon exceed the fund’s assets, which could hoist red flags at the IRS.
When the Western Conference reduced future benefits to protect the plan’s funding ratio, it was already fully funded.46 The actuaries knew that future benefits had to be reduced to keep the fund’s ratio from slipping in the future, and did so to ensure that the benefits the rank-and-file had accrued would be protected.
The Central States, meanwhile, was trying to portray its fund’s critical status as somehow positive. It argued in a 2008 newsletter to members that endangered plans (better fund- ed than critical plans) are required to significantly increase contribution rates, develop a strict 10-year recovery plan, and possibly eliminate future benefit accruals.47 Plans in critical condition are permitted a longer recovery period, and do not allow the fund to reduce benefit accruals below the Central States’ current rate.
While Central States did not lie about regulations, this rosy picture was a sugar-coated way for the Central States administrators to tell members that their pension plan won’t be solvent for more than a decade, while better-off plans will
have recovered faster, not to mention the fact that the plan would still have one-half or less of assets needed to pay all obligations.
The Teamsters for a Democratic Union,48 a dissident fac- tion within the union, recognized that the administrators werenottellingthemenough.ThisfactionthoughtTeamsters members ought to be able to see what was being done with their retirement money and demand accountability for poor performance. They asked to see the plan’s quarterly financial reports, and when that failed, sued for access.49
The problem with the Central States has been going on for years. Only the Pension Protection Act, fiercely opposed by the Teamsters, forced the Central States to take decisive action to shore up its pension fund. The Western Con- ference fund shows that it is possible for a plan to remain solvent even in deteriorated economic conditions. All it takes is a little foresight, a little restraint, and a willingness to communicate to members. The Central States seems to have none of these.
In summary, a large number of Teamster affiliated pen- sion plans have severe funding problems, putting at risk the retirement plans of approximately three quarters of a mil- lion of the union’s members. Moreover, the example of the Western Conference Teamsters plan shows that the econo- my is not solely to blame. The Western Conference showed flexibility, reducing benefits after the 2001 recession and hence, avoiding the fate of many of its peers. The Teamsters Web site contains no mention or sense of urgency about the pension funding crisis affecting rank-and-file members. At the same time, the pension plan for union officers was 96 percent funded.
http://www.hudson.org/content/researchattachments/attachment/808/dfr_pension_2010_highres.pdf
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
“You deserve to spend your retirement doing whatever makes you happy and fulfilled. But to do that, you’ll need monthly income you can rely on.” These are the words of wisdom provided by the International Brotherhood of Teamsters to members on the 401(k) section of its Web site. Unfortunately, the union is failing badly in its promise to its workers and nowhere is the chronic underfunding of union pensions more evident than with the Teamsters union.
Over 40 Teamsters-affiliated pension funds are now in either critical or endangered status, putting in severe jeop- ardy the retirement plans of three-quarters of a million
union members—about 40 percent of current rank and file and retirees.32 Using the latest comprehensively available data (predominantly from the first half of 2007)—a time when global stock markets remained very strong—shows that even then these pension funds had a deficit of over $36 billion (not far shy of Greece’s 2009 budget deficit). This equates to a funding ratio of just over 48 percent.33 It is like- ly that further deterioration has occurred since this time.
An example using two major Teamster affiliated pension plans—the Central States Fund and the Western Conference Teamsters pension—highlights why the unions’ tendency to blame all the problems on the economy and the stock mar- kets holds very little water.
At the end of 2006, the Central States Pension Fund cov- ered over 451,000 workers, with about 155,000 of them cur- rently employed. In 2007, UPS, the parcel delivery company, bought out the contracts for 44,000 of those workers, paying the fund $6.1 billion and shrinking the number of current workers covered by the plan to about 106,000. The cash infu- sion, however, was not enough, and the fund determined it was in critical status in 2008.34 At the end of the first quarter of 2009 the fund had $15.66 billion in assets—down from $17.36 billion at the end of 2008 and $20.67 billion in 2007.35 Given the fund’s liabilities were more than $44 billion in 2007, the current funding deficit could be close to $30 bil- lion. The dire outlook was recently acknowledged by the fund’s Executive Director Thomas C. Nyhan in testimony before the Senate. He suggested that absent corrective action, the fund could become insolvent in 10 to 15 years.36
In contrast, the Western Conference Teamsters pension, with over 500,000 participants, was in no such difficulty and anticipates few, if any, problems in the future. In 2007, its funding ratio was 80 percent, and according to the annual funding notice from the fund’s actuary, it was 97 percent funded in 2008.37 It has dropped back to an 85 percent fund- ing level in 2009, but reasonably expects to be fully funded without any extraordinary efforts.
There are three major differences between these funds. First, the Central States Fund is managed by J.P. Morgan and Goldman Sachs, a holdover from a court decision made in response to the late Jimmy Hoffa’s mismanagement of Teamster pension funds decades ago. (Hoffa was president
of the international union in 1958-1971.) In contrast, the Western Conference is controlled by the union and partici- pating employers. It is tempting for unions and their sup- porters to blame the banks for poor performance, except that the same problems have plagued union pensions that are not controlled by court-appointed banks.
Another difference is investment strategy. Over two- thirds of the Central States investments have generally been in stocks, making its fund value heavily dependent on mar- ket performance.38 The Western Conference funds are slant- ed towards more conservative, diversified assets. In 2004, the Western Conference trustees held 56 percent of the fund in government and corporate bonds, 39 percent in stock, and 5 percent in real estate.39 The Central States Fund’s recent fil- ings list 1.5 percent of their assets held in “other, primarily real estate related” sources.40 But this is a disingenuous sta- tistic, given that Central States’ fund holds 33 percent of its assets in “fixed income” investments.41 Fixed income securi- ties include real estate investment trusts and GNMA mort- gage backed securities. It is therefore uncertain how much of the fund is and was invested in real estate, an ironic state of affairs given that the current pension structure came about as a result of Central States’ historical real estate investments maintained by organized crime.
Arguments have been made that the bank-managed pen- sion fund has a bias towards high-risk, high-reward invest- ments, rather than the less risky investments the Western Conference engages in. But saying that the trustees have no capacity to suggest or require more conservative investment strategies is dubious. It is far more likely that the trustees have been in favor of the high-risk strategy in the hope of high rewards. After all, the pensions on the line are for rank- and-file members, not the trustees.
The third difference between the funds is one that Central States cannot blame on the economy, the fiduciary managers, or employers. In 2001-03, the Central States struggled with poor performance and a falling funding percentage. There were serious concerns that the PBGC would be forced to take over the fund, reducing guaranteed pensions to the maximum of $12,870 a year for a worker with 30 years of service.42
This was averted only by the Central States and its con- tributing employers developing a rescue plan that involved
reducing future accruals of benefits, shuffling health and welfare benefit contributions to the pension plan, and re- questing the IRS to waive minimum funding standards for a decade.43 This waiver was contingent on the Central States maintaining a stable funding ratio, which they failed to do, andthefundappliedforasecondwaiverin2008.44
In 2003, the Western Conference embarked on a similar recovery plan. Poor economic performance had caused $5 billion in losses that required the fund to cut accruals for future benefits.45 They expected current benefits to soon exceed the fund’s assets, which could hoist red flags at the IRS.
When the Western Conference reduced future benefits to protect the plan’s funding ratio, it was already fully funded.46 The actuaries knew that future benefits had to be reduced to keep the fund’s ratio from slipping in the future, and did so to ensure that the benefits the rank-and-file had accrued would be protected.
The Central States, meanwhile, was trying to portray its fund’s critical status as somehow positive. It argued in a 2008 newsletter to members that endangered plans (better fund- ed than critical plans) are required to significantly increase contribution rates, develop a strict 10-year recovery plan, and possibly eliminate future benefit accruals.47 Plans in critical condition are permitted a longer recovery period, and do not allow the fund to reduce benefit accruals below the Central States’ current rate.
While Central States did not lie about regulations, this rosy picture was a sugar-coated way for the Central States administrators to tell members that their pension plan won’t be solvent for more than a decade, while better-off plans will
have recovered faster, not to mention the fact that the plan would still have one-half or less of assets needed to pay all obligations.
The Teamsters for a Democratic Union,48 a dissident fac- tion within the union, recognized that the administrators werenottellingthemenough.ThisfactionthoughtTeamsters members ought to be able to see what was being done with their retirement money and demand accountability for poor performance. They asked to see the plan’s quarterly financial reports, and when that failed, sued for access.49
The problem with the Central States has been going on for years. Only the Pension Protection Act, fiercely opposed by the Teamsters, forced the Central States to take decisive action to shore up its pension fund. The Western Con- ference fund shows that it is possible for a plan to remain solvent even in deteriorated economic conditions. All it takes is a little foresight, a little restraint, and a willingness to communicate to members. The Central States seems to have none of these.
In summary, a large number of Teamster affiliated pen- sion plans have severe funding problems, putting at risk the retirement plans of approximately three quarters of a mil- lion of the union’s members. Moreover, the example of the Western Conference Teamsters plan shows that the econo- my is not solely to blame. The Western Conference showed flexibility, reducing benefits after the 2001 recession and hence, avoiding the fate of many of its peers. The Teamsters Web site contains no mention or sense of urgency about the pension funding crisis affecting rank-and-file members. At the same time, the pension plan for union officers was 96 percent funded.
