A prominent Teamsters pension fund, one of the largest, has filed for reorganization under a new federal law and has sent letters to more than 400,000 members warning that their benefits must be cut.
Any reorganization of the decades-old Central States Pension Fund would take months and would probably be a brutal battle as workers, retirees, union leaders and employers seek to protect competing interests.
“This is going to take people from a comfortable retirement to poverty,” said Wes Epperson, a retired member of Teamsters Local 41 in Kansas City.
Epperson, 66, of Independence, received his letter this week and plans to speak at a rally Saturday morning at Local 41’s headquarters. He is a member of the Missouri-Kansas City Committee to Protect Pensions, which is holding the rally.
Kansas Citian Jeff Crouch, a 72-year-old retired member of Local 41, said his letter shows that his pension will be cut in half starting July 1.
Retirees who are 80 or older will not see their pensions cut, and those over 75 will receive smaller cuts than younger retirees. Disability pensions will continue to be paid in full.
The Central States pension is a multi-employer plan, the type led jointly by a union and a number of companies. It has caused consternation for many years because if it failed, it could wipe out a federal insurance program that pays the benefits of 1 million retirees.
If the reorganization proves successful, however, it could serve as a model for other retirement plans with similar, seemingly intractable financial problems.
Cutting retirees’ pensions has generally been illegal, except under the most dire circumstances. But the executive director of the Central States fund, Thomas Nyhan, said reducing payouts to make the money last longer was the only realistic way of avoiding a devastating collapse in the next few years.
“What we’re asking is to let us tap the brakes a little now and let us avoid insolvency,” he said. “The longer we wait to act, the larger the benefit reductions will have to be.”
He said the Central States fund had been hit by powerful outside forces — deregulation of the trucking industry, declining union membership, two big stock crashes and the aging of the population — and it was paying out $3.46 in pension benefits to retirees for every dollar it received in employer contributions.
“That math will never work,” Nyhan said.
In the coming months, the Treasury Department will review the Central States restructuring plan to make sure it complies with the new law. It will also receive comments from affected people through a special master, Kenneth Feinberg, who has been retained by Treasury to iron out conflicts that have come up in other special circumstances, such as the dispute over whether workers at bailed-out companies could receive contractual bonuses.
The Treasury Department is expected to decide whether to approve the proposal by May. If it does, Central States’ roughly 407,000 members will vote on it.
Nyhan acknowledged that the process would be emotionally charged. Even if a majority votes no, however, the Treasury will have legal authority to impose the changes because the Central States fund is so large that it qualifies as “systemically important.” That means that if it collapsed, it could take down the multi-employer wing of the Pension Benefit Guaranty Corp., jeopardizing the roughly 1 million retirees who get their pensions through the program. (The federal insurance program for single-employer pensions would not be affected by a possible failure of the multi-employer program.)
In the past, multi-employer pension plans were popular because they gave small companies the chance to offer traditional pensions, and they permitted workers to move from job to job, taking their benefits with them. About 10 million Americans participate in multi-employer pension plans, many of them in sectors like trucking, construction and retailing, where unions are powerful presences.
Such pension plans were also said to be financially stronger than single-employer pension plans because if one company went out of business, others would keep contributing to the pooled trust fund that paid the benefits.
The Star’s Mark Davis and The New York Times contributed to this report.