Central States Pension Status

According to the Wall Street Journal article:

It is extremely rare for retirees to ever see reductions in their pension benefit. In most cases, such action is illegal. But a 2014 federal law made it possible for cuts to certain cash-strapped multiemployer plans. The Teamsters’ Central States’ proposed cuts would have slashed some members’ income by 50% or more.

On a media call, Kenneth Feinberg, the star mediator who reviewed the proposal, said he rejected Central States because the overhaul was based on rosy investment return assumptions, uneven cuts among retirees and flawed plan notice to recipients

“We at Treasury do not believe that the plan as submitted will reasonably avoid insolvency,” Mr. Feinberg said.

Specifically, the reasons for the rejection came down to:

  1. Participant notices being too technical for the layperson (as if Feinberg’s denial letter was any better),
  2. UPS was heard, and
  3. the plan laid out was not going to guarantee solvency.

It is number three that is particularly bad news for Central States retirees (whether they realize it now or not).

Feinberg points out that it is required that:

the proposed benefit suspensions, in the aggregate, be reasonably estimated to achieve, but not materially exceed, the level that is necessary to avoid insolvency [and the application was rejected] because the investment return and entry age assumptions used for this purpose are not  reasonable…..[since they] have a significant bias in that they are significantly optimistic.

So what would get the application approved?

  1. Add a few pages to the notices defining more terms;
  2. Protect all UPS benefits with the same 50% (or higher) cap percentage; and
  3. With less optimistic assumptions lay out a plan to avoid insolvency that would have to reduce benefits MORE!

The Central States Pension Fund will fail and benefits will be substantially cut.  The only question is whether the trustees decide to fire themselves and the people now servicing the plan by going directly to the Pension Benefit Guaranty Corporation (PBGC) under a distress termination which would require maximum benefit cuts for participants and a lot of work for the PBGC (or whoever they farm the business out to) or resubmit the application with a later suspension date and bigger benefit cuts that will likely come close to PBGC maximum limits.

11 responses to this post.

  1. Posted by skip3house on May 6, 2016 at 9:46 pm

    How did pensions with defined benefits ever see the light of day, instead of defined contributions with balance on every pay stub, or individual mailings from a bank or Fidelity, etc Kept believing/trusting more and more intricate actuary ramblings, I guess. Thanks for this mind clearing exercise. Too bad we got old before seeing solution is a revolt every 20 years….did Jefferson say?

    Reply

  2. Posted by Anonymous on May 6, 2016 at 9:57 pm

    Hey John colas are no colas does it really matter

    Reply

  3. Posted by jackdean on May 6, 2016 at 10:20 pm

    I put your previous post on the website as breaking news.

    When I started doing this 12 years ago, I never imagined there would ever be such a thing as breaking news.

    On Fri, May 6, 2016 at 4:58 PM, Burypensions Blog wrote:

    > burypensions posted: “According to the Wall Street Journal article: It is > extremely rare for retirees to ever see reductions in their pension > benefit. In most cases, such action is illegal. But a 2014 federal law made > it possible for cuts to certain cash-strapped multiemploye” >

    Reply

  4. Posted by Theodore Konshak on May 6, 2016 at 10:37 pm

    It is an interesting opinion on the reasonableness of actuarial assumptions destined to be cited in bankruptcy proceedings.

    Reply

  5. Posted by Elisin on May 6, 2016 at 10:57 pm

    How long until PBGC goes bust?

    Reply

    • pbgc is a myth. they do not have assets sufficient to act as true insurance if all these funds are going bankrupt, just like aig during the 08 banking melt down. insurance companies, including pbgc are not equipped to handle something of this magnitude.

      Reply

  6. the comments i have heard from the treasury lead me to believe there is more coming. the message is “even cutting benefits will not save the fund”. is this when they go for the whole enchilada and try to fold these huge funds into one big fund or worse into social security?

    there is a part 2 coming….what is it going to be? any preditions?

    Reply

    • the reason i ask this is there are more applications from multiplan admins to cut benefits bc the funds will reach insolvency. they cant just say no and thats it.

      Reply

    • Posted by Theodore Konshak on May 10, 2016 at 12:27 am

      I remember the LTV restoration. Sell your UPS stock before everybody else does.

      Reply

  7. Posted by Rex the Wonder Dog! on May 9, 2016 at 2:31 pm

    In this case, unlike the public pension scams, the employees lost most of the principle to Wall Street scams, and it is sad to see but the bottom line is people lose their ass in 401K’s all the time and NO ONE bails them out. There was a woman, 80 y/o, on CNBC last week whose Wall Street “adviser” put ALL of her pension money into Puerto Rico bonds, no one is baling her out. They will have to eat it like everyone else.

    Reply

    • Posted by Anonymous on July 14, 2016 at 6:53 pm

      80-year-old woman with a “pension advisor”? nice.. guest the blue-haired elite are getting nailed, huh? MY pension adviser is the guaranteed 2% return I am promised by Prudential. Is that really too much to ask? After all, anything greater than 2% (and fees) is gravy to them. Bullshit..I want my pension in perpetuity!!

      Reply

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