Fate of 400,000 Teamster Pensions Rests in Ken Feinberg’s Hands

  • Federal mediator will decide on truckers' payouts by May 7
  • `You cannot help but be affected by retiree after retiree'

Kenneth Feinberg. Photographer: Andrew Harrer/Bloomberg

Fred Allsen, a retired truck driver and disabled Vietnam War veteran, has received a $2,700 pension check every month for the past decade. That may not last much longer.

By May 7, federal mediator Kenneth Feinberg must decide whether to accept a plan to cut Allsen’s payouts and those of thousands of other teamsters to prevent the Central States Pension Fund from going broke. The decision could set a national precedent for other multiemployer funds.

Kenneth Feinberg

Photographer: Andrew Harrer/Bloomberg

“It would be devastating,” said Allsen, 66, who spent 32 years trucking freight in Illinois and now lives in Cape Coral, Florida. His pension check could be reduced by more than half. “We’d have to cut back on everything to survive.”

Allsen is at the center of what could be the first U.S. government-approved multiemployer pension reduction outside of bankruptcy proceedings. For Feinberg, a Washington lawyer who has built a practice mediating complex claims, it marks another appointment by the government to make a decision no one wants to make. He previously oversaw pay cuts for top earners at bailed-out banks after the financial crisis and administered the September 11th Victim Compensation Fund. This time, as the Treasury Department’s special master for pension reform, his hands may be tied.

Pension Reform

That’s because Feinberg’s new role was created by the Kline-Miller Multiemployer Pension Reform Act of 2014, a last-minute amendment to an omnibus budget bill. It’s designed to cut payouts at ailing pension funds serving multiple employers to ensure their survival.

“You cannot help but be affected by retiree after retiree after retiree,” said Feinberg, who has attended town halls in eight states to discuss the Central States plan. “On the other hand, there is a law that was passed and we have to enforce the law.”

While many pension funds are struggling as fewer workers pay in and Baby Boomers retire, multiemployer funds have the added burden of looking after so-called orphan retirees from bankrupt member companies. Pension contributions are typically considered unsecured liabilities in Chapter 11 proceedings, often leaving funds empty-handed.

Feinberg, 70, who also helped adjudicate claims in the Deepwater Horizon oil spill disaster and will soon oversee a fund to compensate victims of state-sponsored terrorism, has repeatedly reminded retirees that the law requires him to answer three big questions: Did Central States exhaust all other alternatives? Are the benefit cuts equitable? And will they preserve the fund?

Rosy Assumptions

About two-thirds of the benefit plans covering 400,000 working and retired members of the International Brotherhood of Teamsters would be reduced under Central States’s proposal, with about one-sixth slashed 50 percent or more, documents show. The fund projects that without the cuts it will be insolvent by 2026. It’s currently paying out $3.46 for every $1 it takes in. Even under its plan, it gives itself a coin-flip’s chance of surviving past 2064.

How Feinberg interprets the law, given those odds, will decide the rescue plan’s fate. He’ll have to consider allegations, made by John Murphy, a Teamsters union vice president, that even those figures are based on rosy assumptions.

Tom Nyhan, who joined Central States’s legal department in 1985 and became executive director in 2002, sees the plan as the last best hope. That has pitted him and the fund’s trustees against retirees who have taken to blogs and Facebook to question Nyhan’s loyalty, motives and $694,786 in compensation.

“I don’t sleep well at night lately,” Nyhan said in an interview, pointing out that a majority of Central States’s members will be better off if the fund is saved. “You have to balance that against retirees who have settled expectations, rightfully so, who are getting the rug pulled out from underneath them.”

Hoffa’s Bank

Central States collected its first contributions in 1955 and soon became “the subject of controversy and allegations of misuse and abuse of its assets,” according to a 1985 Government Accountability Office report. Trustees allegedly “made questionable loans to people linked to organized crime,” the GAO said. Teamsters President Jimmy Hoffa was convicted in 1964 of defrauding the fund after it made loans to a Florida real estate company in which he had a secret interest, court documents show. In 1982, the fund signed a consent decree turning over investment management to court-appointed firms.

Around that time, the trucking industry was deregulated, leading to the shutdown or bankruptcy of almost all of the fund’s 50 largest member companies and $3.7 billion in unfunded liabilities, said Nyhan.

Still, returns were good, and Central States had four working members for every retiree. Assets ballooned to more than $20 billion in 2000 from $2.4 billion in 1980.

The bursting tech bubble sparked two years of investment losses. In response, Central States cut benefit accruals, raised employer contributions and ended its plush early retirement opportunity for longtime workers. Assets fell to $15.4 billion before recovering to $20 billion by the end of 2006.

‘Red Zone’

The next year, United Parcel Service Inc. negotiated an exit from the fund for its 48,000 union employees in return for a lump sum of $6.1 billion, which Central States invested in the market just before it collapsed. Assets fell $9.4 billion in 2008.

“We saw the tsunami,” said Nyhan, who sent members a letter informing them the fund was in the “red zone.”

Northern Trust Corp., a Chicago-based money manager, has served as a court-appointed fiduciary for Central States since 2005, when it shared the role with Goldman Sachs Group Inc. It became the sole adviser in 2010.

In 2009, Central States lobbied Congress for the ability to hand over liabilities from bankrupt member companies to the Pension Benefit Guaranty Corp., a government agency that administers benefits to failed plans. But political will was sapped by Wall Street bailouts, Nyhan said. The effort died in a House of Representatives subcommittee. In 2013, Central States worked with businesses and labor groups to craft a proposal that served as the basis for Kline-Miller.

“In the space of about four days, this law came into being without one public hearing on the actual language, without any vetting at all,” said Teamsters vice president Murphy.

Feinberg doesn’t disagree. The one-time chief of staff to Massachusetts Democratic Senator Ted Kennedy, said the bill was passed “in the dead of night, with no committee hearings and very little public debate.”

Teamsters Alternative

Both George Miller, a former Democratic Representative from California, and John Kline, a Minnesota Republican, whose names are on the bill, dispute that characterization, saying the legislation was developed over years with input from all constituencies.

The Teamsters alternative is a bill, sponsored by Vermont Senator Bernie Sanders, that would repeal Kline-Miller, make pension obligations a first-claim priority in bankruptcies and allow multiemployer pensions to hand over orphan retirees to PBGC-created funds. That agency has problems of its own, running up a $76.3 billion deficit in 2015.

“I don’t see anything in the configuration of the Congress now, or in the near future, that’s going to put up the billions of dollars to do that,” said Miller, who retired last year. “I think you’re misleading people when you tell them that.”

Allsen, the retired trucker, said he’s worried he’ll have to unplug his air conditioner or stop making contributions to his granddaughter’s college savings. But the Teamsters are counting on Feinberg to give them a fair hearing.

“Mr. Feinberg has done an amazing job,” Murphy said. “He’s given workers hope that their government is listening and cares.”

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