Financial Woes of Teamsters' Central States Pension Fund Hurt Employers, Too
But the fund's deep financial woes also have left hundreds of companies with large potential liabilities, essentially because they have survived where others failed.
In some cases, a company's rapidly growing obligations to the fund can make that company difficult to sell, and even threaten the firm's underlying assets, according to company owners as well as attorneys familiar with pension law.
"I don't mean to sound doom and gloom, but [that's what] it is," said Debra Alder, a third-generation owner of a group of four trucking companies whose assets, she believes, eventually will be claimed by Central States.
"There's certainly not anything in the business that we'll ever be able to keep as our own," she said.
Alder believes her Delavan, Wisconsin, business, Alder Group Inc., is unsaleable. Jack Schwerman, president of Milwaukee's Tankstar USA Inc., sees his situation much the same.
"With the pension liability, you cannot market it, because you have a liability that exceeds your assets," he said.
Created in the 1950s to cover workers represented by the Teamsters union, Central States has seen its balance sheet deteriorate dramatically amid unfavorable demographics, investment reversals and the sharp decline in unionized trucking.
Where 35 years ago Central States had four working Teamsters generating contributions for every retiree, today there are five retirees for every active worker. According to its most recent funding notice, the fund's $35 billion in liabilities as of Jan. 1, 2014, were more than double the value of its assets, and the gap had grown by $3.5 billion since 2011.
Facing insolvency, Central States is proposing drastic benefit cuts under a year-old federal law that allows such steps by financially troubled multiemployer pension plans.
The proposal, which would have to be approved by the Treasury Department, has retired Teamsters up in arms. Last week, hundreds turned out at hearings in Milwaukee and Columbus, Ohio, to voice their concerns to Kenneth Feinberg, the Treasury Department's special master overseeing the Central States proposal.
The employers' anxiety is quieter. But it is keenly felt, and it springs in part from the same daunting math now besetting the retirees.
In 1980, on the eve of deregulation that would erode unions' clout in trucking and transform the industry, Central States had 12,000 employers contributing to its pension plan.
The count as of July of this year: 1,800.
Some companies essentially paid to leave Central States, which billed them what is called a withdrawal liability to cover their share of the plan's future obligations. But bankruptcies and other business failures spurred much of the decrease in the number of participating employers.
Which has created major problems for companies such as Alder's.
It goes to the way multiemployer plans work. Developed as part of collective bargaining agreements, they're common in industries such as construction and trucking.
The plans let workers accumulate benefits even when they move from employer to employer. Each participating company is responsible for a proportional share of the plan's total obligations.
But if the number of contributing companies falls — as it has, precipitously, at Central States — the amount of liability for each remaining company rises.
"It's sort of like a reverse, evil musical chairs game," Chicago attorney Mark Trapp said, "where those that get out benefit and the people that are remaining bear the burden."
And their cost to exit, should they want to attempt it, can be heavy.
Tankstar's withdrawal liability — Schwerman estimated it at about $12 million — has decreased from its peak, but that's not the case with Alder.
Debra Alder said she had never heard of withdrawal liability until about 10 years ago, when a lawyer suggested she write to Central States and ask how much Alder Group Inc. would owe if it left the pension plan.
When she got the answer, $2.2 million, Alder said, "I was absolutely shocked."
That was in 2005. Since then, the liability has increased by an average of more than 18% a year, and now totals about $10 million.
There's a caveat with that, however.
Typically, withdrawal liability in multiemployer plans is assessed in installments based on a company's contribution history, said Gregg Dooge, an attorney at Milwaukee's Foley & Lardner with extensive pension law experience. The payments are capped at 20 years. Any remaining balance at that point is forgiven, Dooge said.
Trapp, who advises companies on exiting multiemployer plans, said making the payments over 20 years and getting the liability off the balance sheet can be a rational move.
He said he tells many clients, "'There's good news and bad news: Yes, you're screwed, but you might not be as screwed as you think.'"
Trapp likened making the annual payments and shedding the liability to paying off a home mortgage rather than paying rent.
"It really can make a company-saving difference for a lot of these family-run enterprises," he said.
But there can be additional costs to such an exit, said Eric Douglas Field, an attorney in Washington, D.C., with a multiemployer pension law practice.
Multiemployer plans arise from collective bargaining, and Field said the union at a company seeking to withdraw often will expect a replacement plan or a 401(k). So the firm will end up paying toward both that and the withdrawal liability, he said.
Alder owns the Alder Group companies with her sisters. They have 25 union employees covered by Central States and another 50 nonunion employees. Two of the companies are unionized and two are not.
The group's entire business consists of delivering milk, ice cream and other products for Dean Foods Co., which presents another cause for worry: If for some reason Dean decided to sever the relationship, Debra Alder said she would be out of business, triggering the liability to Central States.
It's a realistic fear, Field said. The withdrawal liability kicks in whenever an employer stops participating in the pension plan, for whatever reason, he said.
"If you lose your contract, you would still owe withdrawal liability," Field said. "...There are many things out of an employer's control that could happen and cause them to have a withdrawal, and it makes no difference. They still owe the withdrawal liability."
If the liability were triggered, Alder believes Central States could seek all the assets owned by the Alder Group companies, including the nonunion entities, and the headquarters property she and her husband own personally.
Such a possibility is real as well, Dooge said.
"If the withdrawal liability is triggered, Central States or other multiemployer plans are going to look to any of the organizations that are under sort of common ownership or control to satisfy the liability," he said.
Schwerman believes the laws governing multiemployer plans have backfired, and have actually encouraged participating companies to exit if they can — worsening Central States' position.
"It just leaves the rest of us holding the bag," he said.
