Thirty years of work for a truckload of broken promises.
More than 200,000 Teamsters have traveled a long road that was supposed to end with a secure retirement. Instead, decades of misdeeds and neglect have exploded into a public crisis. Now, retired union members face drastic cuts in their monthly pension checks — many by half or more — starting in July.
This is the legacy of failed promises.
They were made and broken by the retired Teamsters’ union, their employers and their Central States Pension Fund. Promises also were made and broken by government safety nets — the U.S. insurance plan backing retirement checks and the federal law that protected benefits they had earned.
Empty promises and empty pockets now characterize the Central States fund, which owes some of its legendary problems to its ties to Kansas City area union leaders, mobsters and employers.
“All through it, we were promised that we would have a pension,” said Gary Waggoner, a retired Teamster who lives outside Odessa, Mo.
His monthly check could be slashed in half. “These cuts are going to destroy a lot of things.”
Retirees, many of whom worked 30 years or more through the union, have protested the cuts at rallies. They worry about losing their homes, paying for medicine and breaking their own promises to help children and grandchildren pay for college.
Each failed promise pushed Central States closer to its own failure. Although the fund held $15.9 billion in assets at the end of September, it needs $11 billion more to make good on obligations to the 400,000 participants it covers.
Only 65,000 remain as active workers bringing in contributions from employers. That means the plan can’t possibly make ends meet and is expected to go broke in a decade.
Others in the plan aren’t drawing retirement benefits yet and no longer work for a company covered by Central States.
Congress has passed up more than one chance to refill the fund’s coffers and make those promises whole again.
Unable to bring more money in, Central States has had to send less money to beneficiaries. Lawmakers enacted a controversial 2014 law aimed at saving the shaky pension plan and others like it — but at the expense of pensioners’ hard-earned nest eggs.
Retirement experts are watching Central States as a pivotal test case, the first to seek cuts for current retirees under the Multiemployer Pension Reform Act of 2014. Some say the move signals a turntoward making the problems of America’s festering pension systems into a personal crisis for individual pensioners.
David Certner, legislative counsel for AARP, warns that it threatens to create “a blueprint for companies and (pension) plans to do something similar.”
One estimate puts the funding shortage for all multiemployer pension plans at $140 billion, including up to $50 billion at the most critically short plans. The same painful reality confronts many state and local pension plans that collectively are $1 trillion short of covering what they will owe in pensions.
It shouldn’t happen, said Karen Friedman, policy director of the Pension Rights Center that has battled the law that makes such cuts possible.
“These retirees did everything right ... and they’re being blamed for underfunded pension plans,” Friedman said. “The government is going to have to kick in some money, and there are lots of ways of doing that.”
There is growing hope that the pain threatening retired Teamsters may change political minds enough to find a different outcome.
Rita Lewis, the widow of a Teamster retiree, pressed for a better solution during a U.S. Senate finance committee hearing earlier this month.
“We didn’t cause any of this,” she told senators. “This is just plain wrong. A promise is a promise is a promise.”
Long road to crisis
Central States’ promise of pensions started with Jimmy Hoffa, the legendary union leader whose son now leads the International Brotherhood of Teamsters.
Hoffa started the pension plan in 1955 with the idea of adding pension contributions to the pay, vacation and other benefits Teamsters earned from employers.
The second promise came from the trustees who ran the Central States Pension Fund. They would prudently invest the money paid into the fund so there would be enough to pay benefits as workers retired.
Instead, the trustees got into bed with the mob.
Indictments led to convictions of Roy L. Williams, the Kansas City Teamster leader who was among the first fund trustees, and others. Central States’ mob connections were so public that they popped up in a scene in the 1995 movie “Casino.”
Central States has covered many employers that hired Teamsters, from delivery giant UPS to small shops that wanted skilled union drivers. It meant workers’ pensions would be covered even as they changed jobs.
This provided a third promise, safety in numbers. If one or a few companies failed, the others would pick up the shortfall in contributions.
Instead, many businesses in the plan failed to make their contributions or to pay fees triggered by withdrawing from the plan. Often, it was because they went out of business. Central States lists more than 1,200 employers that left behind unfunded pension benefits.
They essentially orphaned workers, and the name has stuck. Central States says 99,400 of its 400,000 participants are tied to these orphan companies. It exposes their benefits to some of the steepest cuts to keep the plan alive.
Donald Cain is one of those orphans. The Lathrop, Mo., resident said he faces a 73 percent cut to his monthly pension check.
“I’ll probably end up having to sell the house I worked for all my life and move to low-income housing,” Cain said.
Uncle Sam provided a fourth promise by creating an insurance plan to back up pensions like Central States. Funded by premiums from the multiemployer plans it covered, this part of the Pension Benefit Guaranty Corp. would step in if a fund went broke.
PBGC, however, collected tiny premiums from multiemployer plans, and the pension guarantee to workers was just as small. Now, the guarantee maxes out at less than $13,000 a year per worker. The maximum guarantee PBGC provides for single-employer pensions is closer to $60,000 a year.
Central States’ plan to slash existing pensions would still deliver bigger monthly checks than the PBGC’s multiemployer guarantee will cover.
Federal law offered a final promise. Until the 2014 pension reform law, troubled pension plans couldn’t cut the benefits that workers already had earned. Changes could come only to how benefits were earned in the future.
Under the 2014 law and for the first time, plans like Central States that are “critical and declining” can cut existing pension checks. Such proposals require U.S. Treasury approval to cut benefits.
“It’s a disgrace,” said Joyce Lowe, whose husband’s pension check would be cut 34 percent. She’s worried about paying for surgery and medicines she needs.
“We have kids in college we won’t be able to pay for,” Lowe said.
Doing what’s right
Many retirees know exactly what should be done to keep those promises.
“We ought to get in there and have the United States government make us whole,” said Charlene George, president of the Teamsters Retirees Club of Kansas City.
Many retirees say Uncle Sam has had a lot to do with Central States’ fund going broke. Some pension experts agree, though their reasons vary.
For George, deregulation of the trucking industry in 1980 led to the pension fund’s biggest problem. It drove a lot of unionized companies out of business, killing union jobs and orphaning retirees.
Central States blames deregulation, in part. Executive director Thomas Nyhan called deregulation a “tsunami” that hit not only the Central States fund but also other Teamsters pension funds that he expects to seek cuts as well.
Nyhan said only two of the 50 largest companies contributing to the plan in 1980 survive today. They are ArcBest Corp. and YRC Worldwide Inc., which is based in Overland Park.
YRC, more recently, was in danger of failing itself and stopped contributing to Central States in 2009. When it restarted contributions in 2011, it paid only a fourth of what it owed, again to keep the still-struggling trucking company afloat.
The PBGC’s multiemployer guarantee is another government failing, says Norman Stein, a Drexel University law professor working with the Pension Rights Center. Set up by Congress, PBGC would collapse under the weight of the guarantees it faces from Central States and other troubled multiemployer plans.
“Who should bear responsibility for that?” Stein said. “Arguably, those who set up the program. There’s some public responsibility.”
Retiree Charles Guerdet finds another federal fault. The Illinois resident cites a 1982 consent decree that sought to end mob influence over how the fund’s money was invested.
It still gives the U.S. Department of Labor the power to vet the trustees’ candidate to oversee investments of the fund as a named fiduciary. The fiduciary is appointed by a federal judge overseeing the decree.
To Guerdet, this long oversight role means the federal government owns Central States’ problems.
“If you own it, you pay for it,” he said.
Instead of their promised pension checks, Central States retirees may be in for a reality check.
Lawmakers in Washington already looked at covering the fund’s shortfall and found little interest in the idea, though there are hopes that things could be different now.
The Casey-Pomeroy bill offered a rescue in 2010. Congress would set up a new fund within the PBGC to help cover orphans, who would be stripped out of the shaky pension plans. Opposition to the bill included cries it was another bailout in the wake of the financial crisis in 2008.
Nyhan said the political environment is no better today.
“I tried to do it myself and got spectacularly nowhere with a Democratic House, a Democratic Senate and a Democratic White House,” he said.
One sign Nyhan may be right is the Keep Our Pension Promises Act proposed by Vermont Sen. Bernie Sanders. The Democratic presidential contender wants to pry open the wallets of the 1 percent by killing two tax loopholes. It would set up a $29 billion fund within PBGC to help cover orphans’ pensions.
KOPPA has gone nowhere on Capitol Hill and is getting little if any attention on the campaign trail.
Short of a bailout, some retirees are ready to take their chances despite Central States’ doomed future.
“If the government is not going to bail us out like they did everybody else ... just let the damn fund go broke,” said Mark Nichols, who said his Central States checks would be cut 60 percent.
Nichols figures he would still collect his full pension until he’s nearly 80. At that point, he expects to be in a nursing home and the government would be taking care of him anyway.
Many retirees face a similar fate and sooner if their current checks are cut as drastically as Central States wants. Social services, food banks and federal assistance programs would pick up some of those most hurt by the cuts.
Stein said local and even some state economies could feel the impact. The pain will be large because many believe the actual cuts under the Central States proposal are much greater than expected.
“The shock may shake some action out of Congress,” said Alicia Munnell, director of the Center for Retirement Research at Boston College.
Munnell said Congress may act but not necessarily to cover Central States pensions in full. Others agree, saying other funding sources would be needed, too.
Among the suggestions, employers paying into Central States might be required to pay more. This would be required if the retiree benefits are cut. But there is a risk that large increases would push more companies and retirees out of the plan.
Nyhan said the effort simply wouldn’t make much difference. Raising employers’ contributions for the 65,000 active members by 8 percent a year, every year, he said, would extend the life of the pension fund by 30 to 45 days.
Yes, he said days.
Other suggestions include government loans, loan guarantees or federal tax credits. One suggestion would require banks that received federal money in the Troubled Asset Relief Program to make loans to cover shortfalls.
Reformers may have little time to make good on the retired Teamsters promised pensions. A decision on those steep cuts is coming soon.
Central States’ proposal is now under review by the Treasury Department. It tapped mediator Kenneth Feinberg, who handled the September 11th Victim Compensation Fund and other notable cases, to decide whether it meets the 2014 law.
Feinberg expects to rule during the first week of May. If the proposal passes, Central States members would vote on it.
A collective “no” vote wouldn’t kill the proposal. The Treasury would then decide whether Central States’ failure would be “systemically important.” If it would be, then the law requires the Treasury to put through the benefit cuts or some version of them.
“To do right (by retirees) you have to repeal ... the cutback provisions and come up with new ways of solving the problems,” said Friedman of the Pension Rights Center.
Friedman is calling for a “grand bargain” to be struck by all interested parties in the fate of Central States and, by extension, other stressed multiemployer pension plans.
It would bring together representatives of employers, unions, government, active workers and, on her list, “real retirees.” Dozens of retiree groups have formed to battle the proposed cuts and inform other retirees. Their leaders should be directly involved, she said.
Others agree for no other reason than retirees likely will have to give up some of their pensions as part of a grand bargain.
Scott Cooper, a longtime YRC employee, said he would sign on to that. His pension is slated for a 50 percent cut.
“I’d much rather give a couple hundred a month and keep my pension,” he said during a town hall meeting Feinberg held in Kansas City last month.
No ballot, ‘yes’ vote
When does failing to vote mean a yes vote? When Teamster retiree checks are on the line.
That’s not a joke. The 2014 Multiemployer Pension Reform Act allows members of the Central States Pension Fund to vote on its proposal to cut their pensions to keep the fund from failing.
Any member who fails to return his or her ballot will be counted as a yes vote in favor of the proposal. It’s contrary to elections that seek to establish or end union representation at an employer. In those votes, only ballots that are cast are counted.
Ohio Sen. Rob Portman has proposed the Pension Accountability Act, which would count only returned ballots in proposals like the one from Central States. It also would make the members’ vote binding, rather than allow it to be overturned by the U.S. Treasury under some circumstances.