By Jesse Marx
By Chris Parker
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It might have been called The Perfect Setup for The Perfect Storm. When the stock market crashed in March of 2000, Central States quickly lost $3 billion. According to the Congressional Research Service, it suffered more during the recession than most multi-employer plans because it upped its stock holdings at the beginning of 2000.
Over the following two years, while the fund wasn't making money, managers had to dip into assets to make payments to retirees. By 2002, the fund's balance had fallen to $15.3 billion. Today, assets have supposedly increased to $18.5 billion, but the trustees--half of whom represent UPS and other employers--say that's still not enough to generate the income needed to meet the fund's obligations.
Deciding whether they're right is an exercise in voodoo math. The laws spelling out how much money is enough for a pension are anything but definitive. There's a formula for deciding everything from what economic indicator to peg projected interest rates to, to how long retirees will live. But by starting with different assumptions, two different actuaries can conclude that the same fund is either robust or on the verge of bankruptcy.
For example, last year US Airways terminated its pilots' pension without making the massive settlement usually required, a move it justified by saying it was necessary to keep the company out of bankruptcy. At the time the fund was closed, airline brass said it would cost $2.5 billion to fund the pension adequately. But federal regulators didn't even blink shortly thereafter when airline attorneys argued in bankruptcy court that the liability was actually only $900 million. (The truth no longer matters to the pilots; they are now being paid much smaller pensions by the federal Pension Benefit Guarantee Corp.)
The reform group Teamsters for a Democratic Union has organized a committee that's attempting to raise funds to hire an actuary to perform an independent study of Central States' accounts. Assuming the group can collect the $25,000 to $50,000 the survey would cost, TDU would still have to convince Central States' trustees to open the ledgers.
Last week, three angry Teamsters filed suit in U.S. District Court in Chicago, where Central States is located. The men, one of them a UPS driver from Anoka, want the federal judge to order the fund's books opened. The maneuver could prove worthwhile. In 1990, Central States administrators claimed that the fund was going broke. The actuary hired by members then concluded that the plan actually had a surplus, and benefits were adjusted accordingly.
If the fund isn't healthy, as the administrators contend, there are a couple of options. The trustees can call on the companies paying into the account to increase their contributions until balance is restored. Or they can solve it the way they have to date. They can reduce future benefits for people paying into the fund, as they've done in Bob Young's case. And they can create hurdles that make it virtually impossible for people like Jackson to retire.
As things stand now, Jackson hopes UPS manages to pull out of Central States altogether. He realizes this would mean financial ruin for the union members left with Central States, but he can't see a way for everybody to win.
"UPS is a lot better off financially than the Teamsters, than a lot of other companies," he says. "There's no way everybody wins. We're all looking out for number one. I can't be so altruistic as to think we're gonna save everybody. I don't blame UPS for wanting to get out of it."
The problem is, freed from its Teamster contracts and any ongoing obligation to people dependent on Central States, UPS could do whatever it wanted with its retirement dollars. It could choose, as it has suggested to employees, to provide a more generous pension of its own. Or it could choose to cut benefits, to stop covering part-timers, to use the money to shore up its bottom line in other ways, or to increase profits by replacing the pension with a much cheaper 401(k)--perhaps one overloaded with UPS stock. No matter the choice, UPS would benefit enormously.
And Jackson's reasoning aside, most workers would lose. Even if UPS chose to cover employees with a traditional pension, there are plenty of ways it could shortchange them. Emboldened by a lack of enforcement, many companies in recent years have dipped into their pension funds. Some have spent the money to offset the rising cost of employee health care. Some have used it as severance for laid-off workers. Some simply took advantage of legal loopholes and added the cash to their bottom line.
During contract negotiations with the Teamsters in 1997, UPS announced it wanted to leave Central States. The union, then headed by reformer Ron Carey, beat back the request and the company agreed to pay into the fund until its current contract with the Teamsters lapses in 2008.
As it turned out, UPS simply shifted tactics and began lobbying Congress to help it get out of Central States without having to make its entire severance payment. At the same time, the company has been pushing Teamster leaders to insist on decreased benefits until the pension is completely funded, also presumably decreasing the amount it would cost to cash out.