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Why is a solution needed?
Like many of the nation’s multiemployer pension funds, Central States Pension Fund has become severely underfunded due to a combination of factors. If nothing is done, the Fund is projected to run out of money within 10 years or less, and will be unable to pay any benefits to current and future retirees.
The Pension Benefit Guaranty Corporation (PBGC) is a federal agency that was created to insure pensions and cover payments in the event that a pension fund runs out of money. When the PBGC assumes pension payments, they are automatically reduced from the full benefit (example: a maximum guarantee of $1,072 per month for a Central States participant with 30 years of service). With more than 200 pension plans covering 1.5 million people projected to fail, many within 10 years, the PBGC is also expected to run out of money. In fact, it is projected that the PBGC’s multiemployer program will run out of money in 2025. If that happens, pension benefits would be reduced to essentially zero—no Central States Pension Fund participant would get any meaningful pension because Central States and the PBGC will both be out of money.
Click here to download a December 2017 report on the causes of the multiemployer pension crisis, the scale of the crisis, and potential solutions. This report was prepared by the Center for Retirement Research at Boston College.
HOW DID WE GET HERE?
A variety of factors led to Central States Pension Fund’s extreme underfunding problem.
The deregulation of the trucking industry in the 1980s resulted in the loss of more than 10,000 employers that used to contribute to the Fund, many without paying their full pension funding obligation. When a company goes out of business without meeting its pension funding obligations, Central States Pension Fund is forced to make up the difference. About half of all Central States Pension Fund benefits payments currently go to these “orphaned” employees, whose employers never fully paid the Fund to cover their benefits.
Baby Boomers are retiring in record numbers and the union workforce has been steadily declining for years. As a result, for every $3.46 that the Fund pays out in pension benefits, only $1 is collected from employers, resulting in an annual shortfall of $2 billion. That math simply doesn’t work.
Additionally, two major recessions since 2000 torpedoed the U.S. economy, driving down the Fund’s investment assets and pushing many once-contributing employers into bankruptcy.
The challenges in our industry continue today and we’ve experienced the loss of many employers even in the past ten years. Since 2008, three major trucking companies — Allied Systems, Hostess Brands and Leaseway/E&L Transport — went bankrupt, leaving the Fund short $1.7 billion. Recently, employers such as YRCW have substantially scaled back their contributions and many other employers have withdrawn completely.
BUT, THE MARKET REBOUNDED, RIGHT?
The market has rebounded, but not nearly enough to make up for the huge imbalance.
Central States Pension Fund’s average annual investment return since 1980 is 10.8 percent, which is in line with returns of other comparably sized funds. Over the past 10 years, our investment returns have averaged 7.1 percent, which is above the 6.9 percent average for pension funds of similar size.
Unfortunately, even record investment returns in the short-term will not be nearly enough to resolve the Fund’s imbalance.
ATTEMPTED SOLUTIONS: 2004-2010
Within the limits of our authority, the Fund has made multiple attempts to try to resolve the huge imbalance created by having three times more retirees receiving benefits than active workers for whom contributions are being made.
- In 2004, we eliminated early retirement with full benefits and increased employer contributions. Substantially increasing contribution rates further would cause additional employers to leave our plan, only accelerating the Fund’s downward financial spiral.
- In 2010, the Fund supported federal legislation (the “Create Jobs and Save Benefits Act,” also known as the Casey-Pomeroy bill) that would have provided additional tools to correct the funding imbalance. That legislation would have required Congress to fund the financially troubled Pension Benefit Guaranty Corporation (PBGC)—the federal agency created to insure pensions and cover payments in the event that a pension fund runs out of money—using taxpayer dollars. The bill failed to pass Congress because there was no interest in, or support for, a taxpayer-funded bailout.
In October 2013, Fund Executive Director Thomas Nyhan testified before Congress that the Fund’s preferred solution is one that avoids benefit cuts, and instead secures new revenue from the federal government to make up for funding shortfalls. Mr. Nyhan also testified that if such legislation were enacted, the Fund would take full advantage of it to restore the benefits of all its participants. With time running out to implement a solution, the fund had a responsibility to take action to protect the pension benefits of our participants. Clearly, the status quo was unacceptable.
How can the Plan be saved?
In September 2015, Central States Pension Fund submitted a pension rescue plan application to the U.S. Department of the Treasury (Treasury) under the provisions of the Multiemployer Pension Reform Act of 2014 (MPRA). This plan included proposed benefit reductions for both active and retired Central States participants. On May 6, 2016, Treasury notified Central States Pension Fund that our proposed pension rescue plan has been denied. As a result, proposed benefit reductions required to save the Fund from insolvency will not take place.
However, Central States Pension Fund remains in critical and declining status, and is projected to run out of money in less than 10 years. In a letter to Congressional leaders, Secretary of the Treasury Jack Lew reinforced the fact that Treasury’s denial of our proposed rescue plan in no way resolves the serious threat to Central States participants’ pension benefits. The fact that the federal government’s multiemployer pension insurance program, the Pension Benefit Guaranty Corporation (PBGC), is also running out of money means Central States participants may see their pension benefits ultimately reduced to virtually nothing when the Fund runs out of money in ten years or less. At this time, only government funding, either directly to our Pension Fund or through the PBGC, will prevent Central States participants from losing their benefits entirely.
A significant number of Members of Congress were vocal in calling for Treasury to reject our pension rescue plan, as were the International Brotherhood of Teamsters, AARP and the Pension Rights Center. It is now time for those who suggested that there is a better way to fix this critical problem to deliver on real solutions that will protect the retirement benefits of Central States participants.
We strongly encourage all Fund participants to call their Congressional representatives to demand legislative action that protects their pension benefits. To find contact information for your U.S. Representatives and Senators:
There is no time—or reason—to delay. With each passing month, this crisis becomes more difficult—and costly—to solve. For over ten years, Central States has fought to protect our participants’ hard-earned retirement benefits. This included painful benefit reductions for active members and mandatory employer contribution increases in 2004, legislative campaigns to secure additional funding in 2009 and 2010, and most recently, our pension rescue plan application under MPRA.
Moving forward, Central States will do everything in our power to support a legislative solution that protects the pension benefits of our more than 400,000 participants and beneficiaries, who should not have to bear the emotional trauma of waiting until the Fund is at the doorstep of insolvency before Congress acts. The moment for action and for doing the right thing is now.
What have we tried?
In December 2014, the Multiemployer Pension Reform Act (MPRA) was enacted and signed into law. MPRA allows trustees of severely underfunded multiemployer pension funds—like Central States Pension Fund—to develop a rescue plan that may include benefit reductions for both active workers and retirees, in order to save the funds and continue paying benefits for years to come.
On September 25, 2015, Central States Pension Fund submitted a proposed pension rescue plan to the U.S. Department of the Treasury. The rescue plan was designed to put Central States Pension Fund on stable financial footing so all participants would get some measure of financial security, even if not the full amount that they expected, and frankly, deserved.
On May 6, 2016, the U.S. Department of the Treasury denied Central States Pension Fund’s rescue plan application. The Trustees then met with the Fund’s actuaries and legal advisors to carefully consider the most appropriate next steps. Based on those discussions, it was concluded that due to the passage of time, Central States could no longer develop and implement a new plan that complies with the final MPRA regulations issued by Treasury on April 26, 2016. Therefore, there will be no new pension rescue plan application.
Although the decision to request approval of a pension rescue plan was very difficult for the Fund’s Trustees, we are disappointed in Treasury’s decision and strongly disagree with the reasons expressed by Treasury for denying our rescue plan application. Central States’ proposed rescue plan was a proposal of last resort, and clearly not an option that the Trustees preferred. It was, however, based on a realistic assessment that benefit reductions under a rescue plan were the only available, practical way to avoid the hardship and countless personal tragedies that will result if the Pension Fund runs out of money.
Current legislative efforts
Senator Sherrod Brown, D-Ohio, introduced legislation on Nov. 16 to address Central States Fund's financial status. The legislation, titled the Butch Lewis Act, contains no pension reductions to actives or retirees, and would prevent insolvency through a combination of loans and PBGC assistance.
The loan amount would be from $11 to $15 billion and the PBGC assistance would total between $20 to $25 billion. The loan would need to be repaid at the end of 30 years, with interest payments made annually. The PBGC assistance would not need to be repaid. Read more here.
Read the response to Brown's legislative effort from Central States Funds Executive Director Thomas Nyhan.