In 2014, Congress passed a law allowing distressed multi-employer plans to reduce benefits for retirees if it would improve the solvency of the fund.
The Central States Pension Fund, which handles the retirement benefits for current and former Teamster union truck drivers across various states applied for reductions under that law.
Currently the plan pays out $3.46 in pension benefits for every $1 it receives from employers. That’s a drain of $2 billion annually.
If benefits are not cut, the fund may go broke as soon as 2025.
Please consider One of the nation’s largest pension funds could soon cut benefits for retirees.
More than a quarter of a million active and retired truckers and their families could soon see their pension benefits severely cut — even though their pension fund is still years away from running out of money.
Within the next few weeks, the Treasury Department is expected to announce a crucial decision on whether it will approve reductions to one of the country’s largest multi-employer pension plans.
The Central States Pension Fund, which handles the retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York and Minnesota, was the first plan to apply for reductions under the new law.
Like many other pension plans, the Central States Pension Fund suffered heavy investment losses during the financial crisis that cut into the pool of money available to pay out benefits. While the stock market has recovered since then, the improvements were not enough to make up for the shortfall that grew as the number of companies contributing to the plan declined and the number of people retiring and collecting benefits increased, said Thomas Nyhan, executive director of the Central States Pension Fund.
If nothing is done, the fund could become insolvent by 2025, said Nyhan. And because of its size, the plan could overwhelm the Pension Benefit Guaranty Corporation, the insurance agency meant to shore up private pension funds, if it went under, Nyhan said.
The Central States Pension Fund pays out $2.8 billion a year in benefits, which would be reduced if the plan became insolvent. By comparison, the PBGC fund that backs multi-employer plans has roughly $2 billion in assets and is also projected to be insolvent by 2025.
“This was a very hard decision, a gut-wrenching decision,” Nyhan said, adding that he feared not taking any action could leave retirees with no pension at all. “It’s not a question of if there are going to be cuts. The question is where and when.”
Out of the 10 million workers and retirees covered by multi-employer pension plans, roughly 1 million people are in plans that could run out of money over the next two decades, according to estimates from the PBGC. Already, three other pension plans that pay benefits to truck drivers and ironworkers have applied to the Treasury to have their pension benefits reduced.
The proposal introduced in September by Central States would cut benefits for current workers and retirees by 23 percent on average, though exact amounts would vary based on people’s age, health status and where they worked.
Public vs. Private Pensions
Unlike the plight of public union workers, especially those in the Chicago Public School System, I have some sympathy for these guys.
Still, the only thing that makes any sense is to reduce the benefits.
What Nyhan said about the Teamsters, is eventually going to apply to corrupt, broken pension systems like those in Illinois. “It’s not a question of if there are going to be cuts. The question is where and when.”
The sooner public unions understand that simple fact the better it will be for all around.
Unions will voluntarily reduce benefits or it will be done to them in bankruptcy court.
Reforms Needed
Illinois desperately needs reforms of all kinds.
- Legislation that would allow municipal bankruptcies
- Repeal of prevailing wage laws that drive up costs of city services
- Right to work laws
- Worker’s compensation reform
- Unemployment insurance reform
I applaud governor Bruce Rauner’s insistence there must be reform before he approves any increase in taxes.
Rauner needs to hold out until Chicago mayor Rahm Emanuel begs House Speaker Michael Madigan for a bankruptcy bill.
Meanwhile, instead of picketing Washington DC for more money, the Teamsters ought to be picketing the Fed for its inflationary policies that contributed to this mess.
It’s tough to meet plan assumptions of 7-8% annually when bonds yield 2% or less.
Mike “Mish” Shedlock
ZIRP is ultimately going to be lethal for all pensions and annuities…
“They” will say that ZIRP/NIRP was necessary to carry “our” country forward against terrorist threats (while”they” are letting the terrorists into our country), that it was “necessary” to finance the “war”. Meanwhile, the big banks and the military industrial complex are really screwing the citizens of this country while “they” invade foreign countries to exploit their resources with the printing press. Trump 2016 will stop the TPP, the final blow to freedom.
You are incorrect. The Fed has repeatedly stated the cost is worth the benefits. As the adults in the room, they can only be assumed to be correct. We should be happy the wealthy are better off and the stock market is much higher. Stock buybacks have helped this while making executives much happier in many ways, including financially. Too bad about oldsters like me who would really like to earn interest on savings, but at least I supported the Fed, mostly because I didn’t have the stomach to bet my retirement on equities that were artificially inflated in price.
When I studied for the CPA exam I had to learn defined benefit pension accounting. What a scam. The expected benefit / cost is used for current income / expenses. The actual, if it is substantially different, is accounted for over a very long time period that takes into consideration the length until it is actually paid out. This means the books still look good in a lot of cases but the facts are much different.
Martin Armstrong: “Behind the curtain, state pensions are lobbying Congress to make it MANDATORY for everyone (not just government employees) to contribute to state pension systems. They want to takeover your 401K, manage everything, and rob your savings to pay for unfunded liabilities to state workers. This is how they are looking to bail themselves out — it will be the dark side post-2017. All of this is going on right now but it is still hush-hush.”
Robbed and cheated by capitalist pigs who reneged on their end of the bargain, such a familiar game of one sided broken promises.
“Robbed and cheated by their own corrupt Union leadership1″….fixed it for you.
Mish
Why have any sympathy for them?
Unions are by far the largest political donors of all time. They give nearly 100% of that money to the most socialist democrats possible. They believe violence is a technique to get their way.
They fight against right to work and DEMAND employees join their thug organization and pay dues as a condition of employment.
Let them rot.
Why have sympathy?
Because hundreds of thousands of people who were told they would get X benefits, and who relied on getting X benefits to retire, will end up getting much less.
And here you are railing about socialist democrats and saying hundreds of thousands of hard-working Americans should rot.
You’re a miserable piece of work, eh?
At the same time they were accepting the promises, they also accepted the idea of preventing other people from competing with them for employment. Why gloss over that part of the arrangement?
2banana – “Unions are by far the largest political donors of all time.” There are all types of unions. Some just call themselves an “association”, like the American Medical Association, a union of members, along with the American Bar Association, the National Association of Realtors. These people aren’t just as powerful? Surely you jest. They don’t lobby hard? Go read Karl Denninger’s posts on the medical monopoly, pharmaceutical monopolies. Mom and pop union members aren’t the only people in powerful groups.
robs – “At the same time they were accepting the promises, they also accepted the idea of preventing other people from competing with them for employment. Why gloss over that part of the arrangement?” See the above paragraph re medical/pharmaceutical monopolies, hard-lobbying associations.
And while we’re at it, because these people “relied on X benefits to retire,” they, safe in the belief that the money would be there, went out and spent their money at the 7-11, Safeway, Target, car dealerships, bought houses, etc. Had they not done this, had they said to themselves, “Well, the money I think I’ve got coming to me is not going to be there, so I’m not going to spend and instead will save my money,” there would have been a lot of empty stores and a lot more stupid, unemployed realtors playing with their staplers.
They went out and spent in your stores, bought things off you because they were sure their retirement money would be there. How about we reverse the process? Let’s just imagine that they never came into your store, never bought a thing off you. How does it feel? A lot of you people made a fortune off these people, bought your fancy houses and cars from the money they provided you, but now you want to call them suckers?
Wow!
The bank’s war on their elders claims additional victims. Not only is their pension being reduced by ZIRP, but also simultaneously inflated away. Bankers are evil.
I assume the Teamsters plan is a very generous plan.It covers a quarter million people and there are only 1 million out of 10 million in similar plans that are at risk for a restructuring in the next 10 years? I don’t believe that, I think a lot more than 1 million are in that same boat.
The other plans aren’t in much better shape. They all work of silly assumptions about interest rates “normalizing” without decimating the value of their investment portfolios. When in reality, the only thing keeping both the stocks and bonds backing their pensions from dropping by 2/3rds overnight, is zirp and the implied promise of forever-QE.
Reality is, noone in the US has saved for their retirement. Instead, all they did, was hand over a third of their income to a bunch of known con-men. Who “promised” them, if they just did that, he would force other people’s children to work their ass off, to buy them the Brooklyn Bridge once their hair started turning grey.
Unions will be bailed out. They have already paid their protection premiums.
By who?
During the recession I read a story that interviewed a hedge fund manager who held GM bonds.
Manager said Steve Rattner (Obama’s car czar) told him something along the lines of
“You are going to take the G** D*** haircut to your bonds or I’ll have the IRS crawl into your every orifice!”
How Sweet ….
They did that for us….well actually for the union members who now own a big chunk of GM….a corporation that still gets massive tax breaks.
All the delusional pensioners take their lead from government where extend and pretend is the daily exercise. Government will squeeze the taxpayer until there is nothing left to take. Its like a night of binge drinking, it will be great until the vomiting begins.
Yeah, Start the hair cut with the union officials who can afford the cut and caused the mess.
Illinois and America needs higher taxes on the rich who can afford it, force companies to bring back the hundreds of billions stashed overseas and return jobs to America
Good Grief
Bernie – is that you?
Retardation???
“Within the next few weeks, the Treasury Department is expected to announce a crucial decision on whether it will approve reductions to one of the country’s largest multi-employer pension plans.”
No Way No How would this statement read this way if POTUS up for re-election.
If he was –
“The Treasury Department announces a committee to study this issue. Findings to be released end of year … no earlier than mid November…..”
Don’t f*ck with the Teamsters (or their pensions).
Somebody’s gonna lose a kneecap.
Many people have lost a lot more than just a kneecap. Read the article I linked below ~
Oh yeah, that “good old” Central States Pension Fund, with the amazing and most colorful history:
https://en.wikipedia.org/wiki/Allen_Dorfman
Do you suppose that all the money that was stolen from the fund over the years by the Chicago Outfit has anything to do with the funding shortfall?
Money stolen early in the compounding cycle… Yep. Turn on the TV and you’ll find news on:
1. Prince died.
2. Obama snubbed by Saudi king on his apology tour.
3, Transgender shit.
4. Old Ted Cruz victory speeches.
5. Any small talk that can fill in the gaps between commercials which now consume 48% of news air time.
Well, that would change the attitude of Wall Street, if a few of those smart boys suddenly broke legs.
“We hair-cutted some folks…”
Hi Mish,
Your web site is not mobile friendly. The new sponsored ad squishes up the text.
Thanks
David
Google says I am mobile friendly
https://www.google.com/webmasters/tools/mobile-friendly/?url=https%3A%2F%2Fmishtalk.com%2F
I have no other complaints
Mish
But only if it’s self driving…right?
I have zero sympathy for those who PT Barnum called “suckers” in the 19th century. They bought the lie that the rest of us knew was fantasy. This didn’t come as a shock. It was simple math. A ponzi scam. We’ve been talking about it for 20 years. If something seems too good to be true it usually is. Are the liars cupable? Yep. But so are those who swallowed the lie hook, line and sinker.
.
This is why I took the cash option when I retired and now control my own pension funds.
Are union truckers going to strike ?
If I didn’t know any better… I might think the Fed kept interest rates historically low to purposefully bankrupt pension plans.
.
Atossa – “If I didn’t know any better…” I think you hit the nail on the head. I think this IS being done on purpose.
The world is in a protracted virtuous cycle of default and deflation.
Back in the day if you lost this much of the Teamsters money, someone was going to painfully disappear. Those were the days. Do you think that is what Trump is referring to when he says he wants to make America great again.
“…Pension Fund suffered heavy investment losses…”
Oh, what a surprise! Wouldn’t have thought of that…
It is always nice to direct the public opinion away from the actual culprits. The workers are just told to pay more and get less while some have played with their money and lost. Hang ’em high!
I personally have never trusted any pension plans so instead have saved couple houses that I rent and get some steady income. Rest I will keep in investment and gold.
This way I can only blame myself if something goes wrong. That is far easier to accept than someone else squandering my hard-earned.
Personal responsibility is the ONLY security. Hiring someone to guard and grow your savings seems simply mad at first glance. With our ability to review history, it should leave no doubt.
The Central States Pension Fund could be one of the several reasons FED Chairwoman Yellen and President Obama met last week. We found out Puerto Rico is defaulting, Sun Edison filed for bankruptcy. Microsoft and Google earning collapsed. Intel is slashing 12000 employees. IBM has gone 4 years with declining sale in each quarter.
It could be ALL these things were on the FED’s radar and closing fast.
And don’t forget the Omnibus Spending Bill that keeps Obama’s Apology Tour Going and the gubberment going until they can leave the next president holding the coveted “Bag of Flaming Shit”.
The FED doesn’t have any radar, if it did none of these problems would be occurring. Obama wanted to know how much time is left before shtf.
So much pessimism when anyone can see how good things are. All that is required is to keep your eyes and ears shut and think of pleasant thoughts. Delusion is such a happy land.
This reality stuff sucks! I wanna be sedated, where’s my soma?
There seem to be a lot of comments blaming someone or other for the situation. It seems to me that many pension funds are going to struggle to meet their commitments simply because of changing demographics. On the one hand the pension scheme members are living longer, pushing up the liabilities of the scheme. On the other hand the proportion of new workers coming into the system is far lower due to lower birth rates, meaning that the productive economy is producing less than it would have done in previous years when the population pyramid had a much wider base. That means that returns on investment are bound to be lower, and pension scheme assets will have a lower value.
That leaves pension schemes everywhere unable to pay. Makes sense really. Consider a nation where you have 1 retiree and 1,000,000 workers, in that situation paying for retirees is easy for the working population to bear. Roll the nation forward, the 1,000,000 retire and let us imagine the new working population is 1 person. In that situation it doesnt matter how much you have saved for your retirement or how much you tax the workers, you simply cannot pay the pension promises you made unless those promises were incredibly close to zero. The changing demographics change the price of money and assets to destroy your retirement fund.
The above model is a bit silly, but it does illustrate how demographics has a massive impact on the ability to fund your retirement.
Mish, I am a Central States Teamster. Your idea of picketing the Fed matches mine. When I suggest the idea to fellow Teamsters or friends, their reaction is a deer in the headlights look or they look at me like I am totally ignorant. Mainstream media has done a great job of dumbing down America. Many of my fellow workers have college degrees, apparently our education system has managed to contribute to the dumbing down process also. My biggest problem with the situation is that the Fed and the U.S. government spent trillions bailing out the too big to fail banks but they can’t find 15 billion to help people who have worked hard all of their lives. I don’t expect a bailout but I do expect to be treated fairly. It has become very obvious too me that our government is more concerned about satisfying K Street lobbyists than ordinary citizens.
My guess is that the longer interest rates remain low (another product of the banker bailout), the more pension funds will suffer. I guess ignorance really is bliss!