Pension cuts barreling down the road?

April 24--Michael Barton drove a truck for three decades for United Parcel Service. But as of July 1, despite all those years on the job, he faces the possibility of a 50 percent cut in his pension checks.

"It's really going to change our lifestyle," said Barton, 67, of Cedar Rapids. "It will knock my monthly check down from $3,000 to $1,500.

"I'm in the physical condition that I am because of the job that I had. And now, what I thought I was going to get in retirement is not going to be there."

Barton is one of 6,700 Iowans who would be affected financially if the U.S. Treasury Department approves an application from trustees of the Central States Pension Fund of Rosemont, Ill. There are some 400,000 retirees nationwide who could be affected.

The application was filed in October 2015 under a little-noticed measure included in the Omnibus Budget Reconciliation Act of 2014, passed by Congress in December 2014 and signed into law by President Barack Obama.

The Multi-employer Pension Reform Act (MPRA) of 2014 allows trustees of severely underfunded pension funds covering employees of multiple employers to cut the benefits of pensioners. "Severely underfunded" plans are those expected to not have enough money to pay 100 percent of benefits within 15 years, or in some cases, 20 years.

The Treasury Department last year appointed Kenneth Feinberg, the lawyer who administered compensation related to the Sept. 11 attacks and the 2010 BP oil spill in the Gulf of Mexico, as special master to oversee the proposed cuts in benefits. By law, the Treasury Department has until May 7 to decide whether to approve or reject the plan.

If the Treasury Department approves the plan, Central States's trustees must allow all participants to vote on cuts before they are implemented. However, the right to approve or reject is largely illusory.

A majority of all workers and retirees in the plan -- not just a majority of those who vote -- is required to block the cuts. A vote to block cuts fails even if 100 percent of those voting oppose the cuts -- should only 49 percent of participants actually vote.

Moreover, any ballot that is not returned is counted as a "yes" vote under a provision of MPRA.

The Treasury Department can overrule the fund participants and approve the plan if it concludes that the plan's insolvency would increase the Pension Benefit Guaranty Corp.'s projected liabilities by $1 billion or more. The PBGC is the federal pension insurance program that assumes the liabilities of underfunded plans.

Karen Friedman, executive vice president and policy director of the Pension Rights Center in Washington, D.C., said the plan must meet specific conditions of the Multi-employer Pension Reform Act:

l The trustees have taken all reasonable measures to reduce other expenses under the fund before reducing benefits.

l The benefit cuts are equitably distributed.

l The proposed cuts will save the plan.

"The Pension Rights Center has taken the position that the Central States plan flunks all three conditions," Friedman said during a phone interview from her Washington, D.C., office. "We think the trustees did not take all reasonable measures to reduce expenses, the proposed cuts are inequitable because they hurt retirees far more and the cuts will not save the plan at the end of the day."

Retirees who are age 80 or over, or who are receiving a disability pension, are not subject to the benefit cuts. Retirees ages 75 to 79 are subject to smaller cuts than retirees under age 75.

Central States trustees contend the pension fund, which primarily covers retired Teamsters union members, is going to become insolvent in 2026 if it continues to pay out benefits at the existing rate. The fund pays out $2 billion more annually than it takes in -- or about $3.46 for every dollar it received in employer contributions.

Central States trustees said the fund needs $11 billion in new money to make good on current and future benefits. They attribute the current shortfall to deregulation of the trucking industry, declining union membership, the volatile stock market's effect on pension fund investments and an aging population.

Moreover, many trucking companies went bankrupt or out of business in the 2008 recession without making their full contributions to the Central States fund. Trustees claim that about half of all benefit payments go to "orphaned" retirees whose employers never paid the full amount to cover their pensions.

That was not the case for United Parcel Service, which made a $6.3 billion payment to the Central States Pension Fund to cover its 8,737 retirees' benefits when it pulled out in 2008 and established a separate pension fund for current employees. The company contends it does not have a contractual obligation to cover the retirees who face the proposed Central States fund cuts.

Friedman said the national impact of the slashed monthly pension checks will be devastating for some 407,000 retirees, widows and widowers.

"We have heard from people who have serious health problems and who will not be able to afford their medicine, if the cuts go through," Friedman said in an October 2015 statement on the organization's website. "We have heard from people who will lose their homes, who won't be able to support their families and who will have to go on public assistance."

The American dream

Russell Haught, 60, of Iowa City drove a UPS truck for 28 years. Haught said many of his fellow retirees will be hard-pressed to make up for the sharp loss of income.

"At our ages, it's hard to find another job," Haught said. "I feel sorry for the guys who retired and are 10, 15 or 20 years older than I am. People are going to lose their houses, and vacations are gone. My wife still is working and it's going to affect her retirement."

Ron Daubenmier, 74, of Cedar Rapids worked for 32 years as a driver for Consolidated Freightways. Daubenmier paid Teamsters union dues, and contributions were paid to the Central States and the PBGC.

"He believed that hard and honest work obtains the American dream," said his wife, Kay Daubenmier. "Now that American dream is being robbed by cutting his pension by 60 percent. Congress passed this law and they have the authority to repeal it."

Friedman said two bills have been proposed in Congress to deal with the effects of MPRA.

"A bill called Keep Our Pension Promises would create a legacy fund that could help reduce the cuts," Friedman said. "It would be funded by closing a couple of tax loopholes for the super-rich.

"Another measure, the Pension Accountability Act, would make the pension plan participant vote binding and would prohibit unreturned ballots on a pension reduction plan from being counted as a 'yes' vote."

Sen. Chuck Grassley has asked the Government Accountability Office to review how the U.S. Department of Labor handled its role with the Central States fund.

A federal court-ordered consent decree was obtained by the Labor Department in 1982 after its investigation found gross mismanagement and self-dealing by fund managers. The consent decree granted the Labor Department considerable oversight authority on the selection of independent fund managers.

Goldman Sachs & Co. and Northern Trust Global Advisors were engaged to manage Central States's investments. The fund sustained a 42 percent drop in assets -- and a loss of about $11.1 billion in capital -- in just 15 months during 2008 and early 2009.

Friedman said the Central States Pension Fund application under MPRA may be the beginning of a much larger move to reduce pension benefits. Four multi-employer pension plans have filed or announced their intention to file applications with the Treasury Department under MPRA, she said.

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