In 2007, UPS dumped its pensioners into the Central States Pension Fund, a fund now destined for bankruptcy.
As part of the collective bargaining agreement, UPS agreed to pick up future payments if benefits are cut.
That provision may cost UPS $3.8 billion or more.
Let’s backtrack and fill in some details.
In December, the Central States Pension Fund informed the US Treasury department that the fund would run out of money in 10 years at the current rate of $3.46 in pension benefits for every $1 it receives from employers.
The plan proposed pension cuts of up to 60%.
Also in December, UPS Called For Denial of the Rescue Plan.
UPS got it wish.
I reported on May 20, Rejected: Central States Fund Proposes 60% Pension Cuts, Treasury Dept Says “Not Enough”; 407,000 Affected.
The fund sent out this letter on May 20.
Click here for the entire “Dear Beneficiary” letter.
There is no plan now, except to let the fund make billions more in payments than it takes in, a sure guarantee the plan will have no assets 10 years from now (assuming 7% or so returns annually).
Dateline April 28: UPS Fears $3.8 Billion Liability
Please consider UPS Faces Up to $3.8 Billion Charge if Central States Benefit Reductions Approved.
United Parcel Service Inc., Atlanta, argued in an earnings presentation Thursday that the benefit reduction application by the Teamsters Central States, Southeast & Southwest Areas Pension Fund, Rosemont, Ill., is not legal.
The company, which withdrew from the $17.8 billion pension fund as part of a collective bargaining agreement with the International Brotherhood of Teamsters at the end of 2007, might also be required to pay between $3.2 billion and $3.8 billion in benefit payments if the benefit reduction is approved by the Treasury Department.
A “backstop agreement” in that CBA stated that in the event “at some point in the future if Central States ever lawfully cut benefits to that group, UPS would provide a supplemental retiree benefit,” UPS spokesman Steve Gaut said in a telephone interview.
Mr. Gaut said UPS also believes the benefit reductions laid out in the application are not legal under the provisions of that act. The MPRA imposed a tiered benefit reduction process specifically for the Central States plan. The UPS argues that the benefit reduction application disproportionally affects participants in the third tier, which comprises the UPS participants.
“The ordering rule that’s laid out in the (act) would indicate that there should be a progressive reduction of benefits starting at Tier I, then moving to Tier II then moving to Tier III,” Mr. Gaut said.
According to UPS, the average benefit reduction for Tier III participants is 53%, compared to 34% for Tier I participants and 29% for Tier II participants.
According to a January paper from the Congressional Research Service, Tier I includes benefits for participants that worked for employers that withdrew from the Central States pension fund without making the payments required to fully exit the plan and Tier III consists of the benefits for the UPS participants. Tier II consists of participants not in either group. There are 100,377 Tier I participants, 322,560 Tier II participants, and 48,249 Tier III participants.
UPS stated in its presentation it will pursue “all available legal remedies if the plan is approved.”
Be careful what you wish.
As noted, the plan was not approved. The Treasury department said the cuts were not big enough.
If UPS had a $3.8 billion liability before, what is the liability now?
Also consider …
- Detroit, Fresh Out of Bankruptcy, Discovers $195M Pension Shortfall.
- Chicago Pension Liabilities Jump 168%, Understated by $11.5 Billion.
Mike “Mish” Shedlock
Eric Z said:
What can brown do for you?
Jon Sellers said:
I’m sure that what the leadership of UPS cares about is kicking the can down the road and getting out with peak stock valuations and golden parachutes. Let the next guy take on the liability, regardless how big.
One $6,000 robot takes the job of two teamsters. The Ponzi scheme ends when you run out of new teamsters.
Stuki Moi said:
This particular mess seems to be entirely UPS management’s screwup. Unless Jimmy Hoffa was litereally standing over their heads with a gun, UPS agreeing to a virtually open ended liability out of blind faith in a bunch of banksters, finance hacks and the childish notion that “investments only go up”, is hardly the Teamsters fault. In fact, having representatives that can get such great deals out of well funded employers, has got to be a feather in labor unionization’s cap.
Somewhere, we don’t know where, Jimmy Hoffa is rolling in his grave.
Adam Price said:
Net annual earnings of UPS were $4.84 billion in fiscal 2015 and a $3.8 billion charge against those earnings would still leave earnings of over $1 billion, so what’s to worry about?
When is a contract not binding?
Also contracts made under coercion and force
All apply to public union contracts.
But Bankruptcy is not in dispute
Can a pension fund enter bankruptcy, or is it precluded from doing so by federal law?
“””” When is a contract not binding? “”””
When in return for hoped for votes
.the legislature takes over the responsibility.
And pins it on the taxpayers.
Welcome taxpayers – or as Gruber calls
“””” Obamacare architect Jonathan Gruber said that lack of transparency was a major part of getting Obamacare passed because “the stupidity of the American voter” would have killed the law if more people knew what was in it. “”””””””
Michael Rudmin said:
I disagree that it is either corruption or stupidity. I think the UPS leadership is going to be painfully aware of the implications of their position, but there is a value to showing loyalty to your people.
I think it is possible that UPS could even go down, out of business… but they are doing the right thing for the right reasons.
Therefore, I think they won’t go down. They’ll take a hit, and pop back wp as the strongest (delivery) kid on the block.
UPS is positioning itself for future union negotiations with the Teansters. UPS’s goal is to get out of all these defined benefit plans.
Ken H said:
Am I reading the UPS announcement incorrectly? It says they withdrew from the Central States Pension Fund in 2007, not dumped their employees into it. I’m guessing they saw the handwriting on the wall 10 years ago and wanted out. If so, then they stand to gain by the proposed plan being rejected. The longer full benefits are paid, the lower their liability as former employees die. Also, because the rejected plan went against the agreement UPS had with the CSPF about who gets hit first, UPS would have been screwed had the plan been approved.
Jim Noordhoek said:
Mish is wrong. UPS withdrew from Central States.
David Tessmer said:
You are correct, Jim. I am one of the retirees affected by this. UPS has also agreed to honor all employees who retire after Dec.29th,2007 but they have agreed NOT TO HONOR us retirees who retired before Dec. 29th, 2007. We helped make UPS successful and now they just leave us ” out to pasture” so to speak and it is like they never knew us at all. Nice way to treat a former employee of 25 years, 4 months and 18 days, a former delivery driver and a 21 year Feeder Driver ( truck driver that pulled double trailers) all over Texas. They promised me a $2500.00 a month pension for life and I have that in writing but now it means nothing! I will have to find a job and at 73 years old, who is going to hire me?
Now the pension fund sent me a letter that I received yesterday telling us that they have no new rescue plan and they advise us to contact our U.S. representatives and congressmen to push for legislation to acquire gov’t funding for the 400,000+ retirees affected by this. I have been asking Sen. John Cornyn and Sen.Ted Cruz and Rep. Blake Farenthold to help us because we have no one else to turn to.
So far, no response from them after I have faxed letters to the two senators. I will be contacting Mr. Farenthold soon.
I wonder how big a cut Thomas C. Nyhan and his cronies will take from their paychecks after making 6 figures a year. I bet none!!
I’m pretty sure the first sentence is incorrect. UPS withdrew from Central States, but I thought it was long before 2007 – buy what do I know.
UPS withdrew from Central States, but I thought it was long before 2007
I quoted an article for that date – Did not look it up
Ken H said:
Mish, I think you missed the point of the comments. UPS didn’t JOIN Central States, they WITHDREW. The whole premise of your post, that UPS dumped its pensioners into the Central States Pension Fund, is incorrect.
That was not the entire premise of the post. My post was about pensions, pension assumptions, and the plight of pensions. Withdrew? Dumped?
change the word and the entire rest of the article reads exactly the same.
Ken H said:
I’m sorry if you thought I was trying to pick a fight; I wasn’t. But you always call others on the carpet for misrepresenting the facts. In this case, you conflated the CSPF issue with its effect on UPS. I agree that the CSPF is totally screwed and current members are going to take a major hit because of the probable insolvency and the feds not approving the cuts. However, UPS exited the CSPF in 2007 (probably because they saw the handwriting on the wall) and agreed to a make good with the union for those who were covered pre-2007. The point of your post should have been that CSPF was trying to take advantage of the make good by decreasing the payouts to the legacy UPS participants relative to (1) the contractual agreement with UPS and (2) payouts to non-UPS participants. UPS was against the proposed plan because it would have increased their exposure over what they had agreed to. The longer CSPF continues to pay full benefits, the lower UPS’s exposure as their legacy participants get older and die off.
If you think your post is correct, all you have to do is read the comments to see how almost all your readers misunderstood the facts. You may think your post was about “pensions, pension assumptions, and the plight of pensions.” Just about everyone who commented thought it was about how screwed UPS was because the feds denied CSPF. Nothing could be further from the truth. If you wanted to make the points indicated, you should have never mentioned UPS.
Time for another brown bailout.
David Tessmer said:
When was the first “Brown bailout”, Professorlocknload?
The post indicates that UPS is on the hook if benefits are cut, but does that also apply if the fund goes bankrupt? Maybe UPS played it smart by opposing cuts if they are not liable if the just goes bust.
I thought in prior articles or posts, that when UPS withdrew they made a significant cash infusion into the fund to cover their people from an actuarial standpoint.
I worked for UPS for 15 years as a driver and witnessed several people in management kick throw and smash box after box and deny claim after claim on poor packing,it was disgusting. Last time I checked it was cheaper to ship through the USPS but few realize it. I would never recommend anyone work there