The Treasury Department on Friday rejected a bid by the Central States Pension Fund to cut current retiree benefits for 270,000 Teamster truckers by as much as 50 percent.
Kenneth Feinberg, the special master to the Treasury tasked with handling proposals by pension funds to cut benefits, said he was not persuaded that the plan would solve Central States’ solvency problems because of faulty assumptions.
Feinberg also noted that the proposed cuts were not “equitably distributed” to all beneficiaries, and that notices to employees announcing the cuts were too confusing.
As I wrote last month, the 2014 “CRomnibus” budget bill contained a provision allowing multi-employer pension plans to apply to the Treasury to make cuts to current retirees, in order to stretch dwindling resources and prevent insolvency. This repealed a 40-year ban on cuts to earned pension benefits, enacted with the 1974 Employee Retirement Income Security Act (ERISA). President Obama supported the 2014 bill that made these changes and whipped for its passage.
Had the Treasury approved the plan, the average benefit cut for current retirees would have been around 23 percent. But some retirees would have seen much larger cuts, up to 50 percent. Central States’ plan, according to Feinberg, did not adequately explain why some classes of retirees would see higher benefit cuts than others.
For example, some UPS drivers covered would have been protected by a 40 percent cap on the benefit reduction. But others would have received less protection, with cuts up to 50 percent. “The different treatment,” Feinberg wrote, “violates the requirement that the suspension of benefits be equitably distributed.”
Feinberg, who handled compensation funds for victims of September 11 and the BP oil spill, also argued that notices to beneficiaries used highly technical language, undefined terms, and material that defied understanding.
Central States expressed disappointment in the rejection, and said in a statement that it would consider next steps, including re-applying after tweaking the benefit formula. It maintained that the fund will run out of money to pay any benefits by 2025 if nothing is done. The cuts, Central States said, were “the only realistic solution to avoiding insolvency.”
Advocacy groups want the federal government to step in with resources, or give retirees a place at the negotiating table to work out a resolution. Friday’s rejection brings those possibilities closer to reality.
“Teamster retirees worked for decades and paid into the Central States Pension Fund under the promise that when they retired their pensions would be there,” said Sen. Al Franken, who led a congressional coalition that urged Treasury to block the cuts. “Congress needs to have an open and honest debate. … We must uphold the promises made to all workers.”