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It was (nearly) the best of times for the Western Conference of Teamsters Pension Plan, it was (nearly) the worst of times for the Central States, Southeast and Southwest Areas Pension Fund.
While that sounds like a Charles Dickens novel, it’s the reality facing two of the largest U.S. multiemployer plans that provide pensions to retirees and active members of the Teamsters union. The two plans have nearly 1 million members.
Central States is among the approximately 130 plans that have projected they will run out of money in the next 20 years. That means the plan’s members could lose their pension benefits. The Western Conference, on the other hand, is close to fully funded and in a good position to pay out pension benefits.
So how did these two plans that were set up to provide pensions to workers in the trucking industry end up in opposite positions?
When Congress passed a law in 1980 that led to the deregulation of the trucking industry, it caused tens of thousands of trucking companies to go out of business. By 2003, Central States lost 70 percent of the employers that contributed in 1980.
“If you look at the top 50 employers in 1980, now only three of them still exist (in the plan),” Tom Nyhan, executive director of the Central States fund, told Bloomberg Law. The plan’s largest contributing employers are ABF Freight System Inc., Jack Cooper Transport Co., and YRC Inc.
Trucking deregulation didn’t hit the Western Conference the same way because it had a more diverse employer base, said Chuck Mack, the plan’s co-chair.
“We have been structured as a plan that would open to any employer who wants to come in. As a result we have food processing workers, public employees, bus drivers, etc.,” he said. “If employers can only contribute 50 cents an hour (per worker) not $5, they can do that. That makes a difference in employers accepting the plan.”
The Western Conference plan’s largest contributing employers include United Parcel Service Inc., Costco Wholesale Group , Albertsons Cos Inc., and Allied Waste .
The two plans have different ratios of active and inactive participants. When an employer withdraws from a multiemployer plan and stops paying contributions, its workers become “inactive.” The more inactive participants a fund has, the larger the burden is on other employers still contributing.
The Central States ratio suffered after UPS left the plan and turned 44,400 active participants inactive, resulting in a loss of more than $500 million in contributions, about one-third of total contributions at that time. More recently, Kroger withdrew in late 2017 to transfer about 1,800 active participants to a new pension fund it established.
The UPS withdrawal also coincided with the 2008-09 financial crisis, which caused the Central States fund to lose $7.6 billion in investments in 2008. That same year, Central States paid $1.8 billion more in benefits than contributions received.
“In down markets, Western Conference generates sufficient revenue from their contribution base, but Central States has to eat into its assets in order to make all the benefit payments,” Nyhan said.
Market downturns accelerated the harm to Central States, but Western Conference’s funding helped it better weather employer withdrawals and market corrections. Immediately after the dot-com bust and the 2008-09 financial crisis, Central States’ funded percentage took bigger hits than the Western Conference.
The Western Conference likely suffered less investment losses in the market turmoils because of its “conservative but diversified” investment strategy, said Mike Sander, the plan administrator.
The Western Conference had an advantage in its funding policy that gave it the flexibility to adjust benefit accrual rates to adapt to changing financial conditions.
Central States may have made bigger benefit promises than what the contribution can support, John Lowell, a partner at actuarial firm October Three, told Bloomberg Law.
Western Conference had a formal funding policy since the 1980s that adjusts its benefit accrual rates, Sander said. This allowed the plan to quickly adapt to changes in the economy. For example, the benefit accrual rate was reduced twice in 2003, because the trustees saw the market after the dot-com bust and felt it was necessary.
Central States doesn’t have such an automatic adjustment structure, Nyhan said. The benefit accrual rate remained 2 percent since the late 1980s until it was reduced by half in 2004. Benefits accrual rate is just one of the factors that determine the overall benefits promises made, and Central States took a few other measures.
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