The Check's in the Mail

Raoul Benavides

When Bob young was 23, he quit his job as a gas station mechanic to go to work for a car dealership. The money was a little better, but the real draw was the sense of assurance that came with the move. Because he'd join a union, he'd have health care benefits and--unlike most guys who worked on cars for a living--a secure pension.

That pension was everything to Young. He knew it was impossible for anyone to perform a rough, physical job into old age. And without much education, his prospects would be slim once his body gave out. So a few years ago, when the dealership he was working for closed, he was careful to take another job with the same union, the International Brotherhood of Teamsters.

Over the years Young turned down better-paying jobs and set aside any fleeting thoughts of opening his own shop. Knowing they'd never be rich, he and his wife planned carefully. They bought an inexpensive house in rural Cokato, reasoning that Young could give up both the long commute into the city and his Teamster job when he became eligible for the pension. He'd be drawing $2,000 a month, but he'd be 53 at that point. If he took a part-time job and they continued to live frugally, they could make it.

Young is a little sheepish when he talks about how it's all fallen apart. He's not the kind of guy who believes in handouts, and he's well aware that most people today anticipate working well into their 60s. But he's been making decisions for the whole of his working life based on the promise of that pension. The money his employers put into it over the years would otherwise have shown up in his paycheck. And in truth, $2,000 a month really isn't that much money.

Last year, the union renegotiated his contract. He got a raise of 80 cents an hour and, miraculously, his health care costs went down $20 a month. Given the economy, he and the other 1,500 guys in his bargaining unit figured it was a pretty good deal. But two months later, despite the new contract, his health care premiums quadrupled and the rule that made him eligible for retirement after 30 years was eliminated. Under the new system, he won't be eligible for health care for several years after retirement and, equally awful, unless he stays on the job for an extra decade or more, he'll be trying to get by on a much smaller pension.

The pension fund, Young and his co-workers were told, was in bad shape. Interest rates were down, the stock market was down, and health care expenses were up. Several of the larger employers who had been paying into the fund had gone belly-up, and there were now more Teamsters drawing pensions than there were working and making contributions.

The fund's administrators even had a clever name for the situation: the Perfect Storm. And that's how it was presented to union members. The hardship was no one's fault, just a bunch of freak occurrences crashing down at once.

But Young is one of a growing number of rank-and-file workers who just don't buy it. Union President Jimmy Hoffa was elected in 1998 on a platform of protecting Teamster benefits. And yet where pensions are concerned, his leaders have managed to negotiate one bad contract after another, seemingly without taking the pension shortfall into account.

For example, Young's own contract was signed two years after the stock market crash, so the trustees who are paid handsomely to look after the money had to have known a shortfall was coming. "It's like they just dropped the ball," he complains. "They didn't even give us the option of putting more money in. There's not a person out there who wouldn't have said, 'Take that 80-cent raise and put it into the pension.'"

Young and his brethren fear that union leaders are playing right into the hands of the Teamsters' largest employer, United Parcel Service. UPS has long wanted to control its own pension dollars, something that is rarely good for workers and retirees, but usually a windfall for corporate executives. And there's reason to think the shipping company will get away with it. Incredibly, despite Enron, US Airways, and other corporate scandals that have wiped out the lifetime savings of countless workers in the last four years, the current Congress has consistently acted to protect big business over voters.

The way Young and his co-workers see it, the people in charge of the pension have a bunch of reasons to exaggerate the size of the crisis and, incredible though it sounds, reasons not to fix it. The Perfect Storm, they say, also turns out to be the Perfect Excuse.  


In theory, Bob Young has the Cadillac of pensions. Started in 1955, the Central States Pension Fund is the second-largest union pension plan in the country. It draws on contributions from 160,000 Teamsters in 22 states and supports 200,000 retirees. Some 4,500 companies pay into the massive account, so the security of each worker's assets isn't tied solely to his or her own employer's fortunes. When a participating company goes out of business, others pick up the slack. It's supposed to be the safest kind of pension.

As added security, the union is an equal partner in fund management. A director and a group of trustees--five union appointees and five representatives of the employers--oversee it. Each is paid $230,000 a year. Because the Teamsters have a long and storied history of corruption--Central States was once dubbed "the mob's bank"--the fund has operated for the past 20 years under the oversight of a federal judge. Pension experts say it has remained squeaky clean.

Like most pension plans, Central States has never had enough money in its coffers at any one time to cover all of its future obligations. Instead, the fund takes in $1 billion a year and pays out $2 billion; investment income is supposed to make up the difference. It's the job of the plan's managers to accumulate enough of a surplus to ensure that bad years don't bankrupt the plan. In 1990, the fund had assets of $10 billion. Nine years later, the figure had more than doubled to $21 billion--more than enough for Young and his brethren to get all they had been promised, and more.

Many industrialized nations pay citizens' health and retirement benefits directly. But historically in the United States, people have been expected to find a job that offers a pension as one of its benefits; accordingly, companies get tax breaks and other rewards for offering pensions.

The idea behind the traditional employer-supplied pension was not unlike the reasoning behind linking jobs with health insurance. Just as health insurance is cheaper for everyone when healthy people and sick people are in it together, so, too, do retirees find prosperity in numbers. Some people quit their jobs before becoming vested; their contributions buoy workers who hang on. Some pensioners die early, while others live too long to get by on their own contributions alone.

Good benefits were believed to work to the employer's advantage, too: That promise of security earned worker loyalty. Plus, money that's pooled in a pension goes further. Studies show that for every dollar that has to be invested by an individual, a pension plan needs about 75 cents. By the mid-1970s, nearly half of American workers were covered by a traditional pension plan.

Of course, that half was typically made up of higher-paid workers. Everyone else was expected to save for themselves, assuming they earned enough, or to rely on Social Security to provide a subsistence-level threshold. The only ways to beat the system, if you were a blue-collar worker, were to get a civil service job as a cop or a laborer, join the military, or get a union job like Bob Young's.

In 1978, Congress created the 401(k), named after the chunk of the tax code that allows people to put off paying taxes on money they deposit in these private retirement accounts. Although the idea was to encourage thrifty workers to supplement their company pensions, it didn't take long for corporate America to realize that the 401(k) was much cheaper than the pension. In addition, it shifted the risks associated with investing to the employee.

Many companies rushed to convert their pensions to 401(k)s. By 1998, the number of workers who had only a 401(k) had far outpaced the number who had some stake in a pension. As a result, an entire generation of workers now thinks a company is generous if it makes any contribution at all to employees' 401(k) accounts.

"What you had on the part of the employer was a move to retreat from responsibility for employee retirement benefits," explains Karen Ferguson, head of the nonprofit Washington, D.C.-based Center for Pension Rights. "Companies increasingly feel they don't have to have these plans."

Unfortunately, she adds, "There's no evidence whatsoever that the [individual] investment approach will work... Some level of collective pooling of risk is critical if we're going to provide people with some sort of security."

National statistics indicate that, before the stock market crash, the average worker in his 50s or 60s had accumulated $57,000 in his private individual retirement account--exactly the kind of predicament Bob Young planned to avoid. If that were Young's situation, unless he somehow made a quick killing in the stock market or won the lottery, he'd be able to make it without his pension for about two years.  


Shortly after his graduation from the University of Minnesota 31 years ago, Bill Jackson (not his real name) took a seasonal job helping United Parcel Service with the Christmas rush. Even though it was temporary, the job paid $4.75 an hour--quite a lot back then. Jackson had a science degree and some good prospects in the food industry, and planned to get serious about launching his career after the holidays. But UPS kept calling, and the money was so good, he recalls, "Who could say no?"

As he moved around the company, he met a lot of folks like himself: educated, marketable, but happy with the protection afforded them by the Teamsters. And all willing to put in 30 years in exchange for a solid pension--$100 a month for every year of service for life, to be exact.

He could have jumped ship at the 20-year mark, and had in fact gotten another degree in a relatively sought-after profession in the intervening years. But he and his wife, a professional in her own right, decided that sticking around for 10 years in exchange for the benefits was worthwhile. He could ply his new trade part-time after retiring from UPS, at least until the house was paid off and she was able to retire, too.

As it turns out, Jackson's was a bad bet. He's had his 30 years in since last year, but needs to bring in $12,000 a year above his $3,000-a-month pension until the house is paid off. And he can't figure out how to retire without violating a Central States rule governing what jobs retirees can take. Jackson has asked several times, but he can't get the fund administrators to give him hard and fast answers as to what he might be allowed to do once he retires.

"I wrote a letter saying, 'Do you mind if I do X,'" he says, hoping to take advantage of his master's degree. "And they came back and said, 'That's fine, but let us know before you get started.' They wanted to know the hours worked and the job classification." The letter spelled out the kinds of jobs that were generally all right if done for 80 hours a month or less: convenience store clerk, school district bus driver, gas pump operator--hardly the kinds of posts Jackson was considering.

"So then I wrote and asked about being a real estate agent. They said, 'Okay, but you have to contact us with the specifics first.'" And the specifics, Jackson knew from experience, were where things tended to get fouled up. His colleagues had gotten similar letters, and had taken jobs that were "probably" okay, only to learn that they'd violated the terms of their pension. Some even owed Central States massive refunds.

Teamsters who retire at young ages must agree not to work more than a certain number of hours a month or in industries or jobs in the union's core businesses. Originally, the reemployment rule was created to make sure people retiring didn't take jobs away from union members. It's not uncommon for pension funds to have these rules, but as Central States' administrators have grown more concerned about the state of the fund, they have begun to interpret the rule more broadly.

One of Jackson's former co-workers went to work at a golf-supply store, only to be told that he could work just in the front half of the store, not the back room. One started a lawn-cutting service, but was told to close the business when it showed a profit. Another, in another unit, was told he couldn't be a Wal-Mart greeter.

In response, some of Jackson's cohorts took jobs off the books, working for cash. Others, like him, decided to hang on and bide their time until the question of the fund's solvency is decided, as well as a class-action lawsuit filed on behalf of some pensioners who ran afoul of the reemployment rules.

"I can't take the risk," Jackson says. "Not just for the reemployment rule, but is the money going to be there? The whole point of the Central States thing is to keep you working for so long, because they want to keep your payment coming into the system." As a result, he's in the ironic position of hoping UPS is able to convince Congress to give it a sweetheart deal that would allow it to abandon the pension plan.

Massive though the shift of dollars to 401(k)s was, another 1990s change in the system proved less visible but no less fundamental. The public once believed that pensions were funded by money that otherwise would have gone into the paychecks of Young and his brethren. But as the pension became an anachronism, corporations began to complain that their pensions were albatrosses, and no one blinked--least of all in Congress.  

Even following decades of steady loosening of the arcane laws governing retirement funds, it's hard for a company to just ditch its pension. In the past, pensions usually died only when a company went out of business. Legally, however, companies have always had the right to "terminate" a pension, provided they ante up enough money for the fund to pay out every nickel promised to date. In the case of UPS and Central States, that's billions of dollars.

In recent years, an increasing number of corporations have attempted to kill off the last of the pensions by arguing that they'll be bankrupted by either funding them or coming up with the payment to step away from them. The success of these gambits rests on convincing lawmakers and federal regulators that the pension is too sick to save.

Too bad, then, that by the end of the '90s most pension funds were fat and sassy. For its part, Central States was so replete that a select few Teamster bargaining units began paying pensions of $5,000 and $6,000, even to fiftysomething retirees with "30-and-out" contracts like Young's. At the same time, Teamster leadership did something previously unheard of: They negotiated contracts that allowed a number of employers not to pay into pensions on behalf of large numbers of workers.

During its most recent round of bargaining with UPS, in 2002, there was no talk of increasing UPS's contributions to the fund. By that point Central States was already in trouble, and, with trustees reporting back to both parties, it's reasonable to assume that each side knew there was a shortfall. At the very least, critics assert, Teamster leaders were well aware that the number of retirees was eclipsing the number of dues-paying members. Nonetheless, union leadership called the deal the best contract ever.

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.

If UPS pulls out, Central States really would end up in dire straits. More than half of its current contributions come from UPS. If the fund went bankrupt, members would receive payments from a federal agency, the Pension Benefit Guarantee Corp. Their checks might amount to one-third of what they're currently entitled to, however.

In April, Congress approved a bill allowing many large employers with pensions hit hard by the stock market crash to postpone making catch-up contributions for two years. The White House had opposed extending the same break to multi-employer funds, which tend to serve union members. But Senate Republican Whip Mitch McConnell of Kentucky convinced the Bush administration to agree to add a provision benefiting Central States, but no other multi-employer fund.

(For the Teamster rank and file, there's one more ugly caveat: Congress agreed that during the grace period, Central States can't increase benefits. So the cuts the fund managers ordered last fall can't be reversed for some time to come.)

At the time of the vote, unnamed Republican officials told the Associated Press that McConnell was acting on behalf of UPS, Kentucky's largest employer. Next on its agenda, UPS quickly announced: "long-term reform."

There's reason to think they'll get it, too. In the 2004 election cycle alone, UPS has donated $1.5 million to candidates for federal office. That's more than any other group or company in the transportation industry. It's as much as the big three automakers combined, and about twice as much as Northwest, Delta, and all of the other large airlines combined.

The Pension Rights Center's Ferguson is quick to call the market crash a convenient excuse. "They're using it as a pretext," she says. "This legislation is exhibit A. They wanted to reduce employer contributions to free up money for other things. It's seizing any pretext to cut back on retirement pay. And it's totally unfair to the longtime, loyal employees who played the game by the rules. It's just callous disregard."


Beefy, baseball-capped, and middle-aged, Bob Rich (not his real name) is slumped miserably over a cheeseburger in the front booth of the Monticello Perkins. He retired a few months before the Perfect Storm hit, and because the law says a retiree's pension can't be reduced, he thought he could ride the crisis out. He was wrong, and the way he sees it, he played by the rules for the better part of a lifetime only to find the rules changed just when he finally needed something for himself.  

Rich is talking about bad faith, and being depressed, and how angry he is at the labor union that was supposed to protect him and see to it that he wasn't destitute in his old age. He's gained 40 pounds in the last few years. He has a bad back and an unusable shoulder. If there's anything redeeming about his experience, it's that he's scared his two sons into putting their noses to the grindstone. They're well on their way to a matched set of engineering degrees from North Dakota State University.

In 1997, Rich tore his rotator cuff and had to give up his job as a driver with a Teamster trucking company. In the hope that he would recover, his employer let him work in the office for another two years. But when it became clear that Rich's work restrictions were permanent, he had to leave the job. At that point he'd been paying into Central States for 28 years. Thanks to a provision for people in his situation, he was able to "buy" the last two years of his pension. He gave the fund $9,500, retired, and expected that in two years he'd start receiving monthly payments.

But in the meantime, he needed to get a job--no mean feat for a disabled trucker in a small town. Complicating things was the reemployment rule attached to his pension, the one that placed restrictions on work by retirees to make sure they wouldn't be competing with union members.

After months of looking, Rich found a job routing freight for a local manufacturer in July 2000. It paid nearly $35,000 a year and had family benefits. He wrote to the pension fund to ask whether the job fell within the parameters of the reemployment rule. He didn't hear anything, so he went to work.

Fourteen months later, and two months after he was supposed to start drawing his pension, he heard back. Central States wanted him to quit. He appealed, a process that took six months. He lost, and in January 2002, he quit the job and began receiving his $3,000 a month pension. In addition to losing health coverage for his family and his new salary, the tussle cost him $18,000 in lost pension. To add insult to injury, the union health plan had begun charging for health care for himself and his wife. His kids weren't covered at all, so he had to find a catastrophic plan to cover them.

Rich needed another job. He got an offer to drive the van for the kidney dialysis unit at the local hospital. He was to load the van, drive it to an outlying community, unload it, wait for the ride-along dialysis technician to finish her work, and drive everything back to the hospital. Central States said no, but, oddly, volunteered that it would be okay for him to work as a groundskeeper at a golf course, or for a government agency.

He kept looking, but hasn't been able to find anything that doesn't run afoul of the reemployment clause. If he were to be caught breaking the rule, he'd have to quit whatever job he had, pay back the pension he'd received while working, and pay a penalty equivalent to three months of payments. He'd had to forfeit his pension once in the past, so he was scared to take anything without Central States' okay. As a result, a couple of jobs that qualified disappeared while he was waiting for an answer. (Central States has since agreed to provide answers to queries like Rich's within 30 days.)

"My dad retired out of the union, too, and the only restriction he had was he couldn't go drive a truck," Rich complains. "The union in the trucking industry is dead. They aren't organizing anyone new and with this out there, they're not going to."

In October 2002, he had a rummage sale. A man came to it and asked if Rich would like to work two days a week at a car auction in a neighboring town, washing cars for $7.75 an hour. Rich jumped at the chance, and for a little while he just barely made ends meet.

But last year his share of his Central States health insurance jumped from $50 to $200 a month. Plan administrators announced their intention to increase each retiree's share of the premium by $100 a month every year until they are eligible for Medicaid. At that rate, by the time Rich is old enough to go on Medicaid, his $3,000 pension will total $1,300 a month.  

If he had a choice, he'd go back to work. "I would have to earn more than $17 an hour to equal my pension, and without an education, that's not going to happen," Rich says. "I buy the paper every day to look for a job. Am I bitter? Yes, I am bitter."

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