Firms May Turn to Congress for Pension Funding Help

This story appears in the May 25 print edition of Transport Topics.

NEW YORK — Trucking fleets saddled with potential multibillion-dollar liability for underfunded union pension plans will look to Congress for a legislative remedy this year, company officials and experts said.

Executives of unionized less-than-truckload carriers said their companies’ finances are threatened by their obligations to make payments into the funds whose beneficiaries include former employees of carriers that have gone out of business and no longer pay into the multi-employer funds.

Both Robert Davidson, chief executive officer of Arkansas Best Corp. and William Zollars, YRC Worldwide Inc.’s CEO, said they favor reforming multi-employer pension plans to change surviving employers’ obligations.

“To have the surviving carriers take financial responsibility for failed carriers is fundamentally unfair,” Davidson said, speaking at the Wolfe Research Global Transportation Conference here. “What is totally unfair is for everyone else to eat in the restaurant and leave us with the check.”

YRC’s Zollars, speaking at the same meeting last week, made a similar point.

Multi-employer pension plans “are the ultimate penalty for success,” he said. “As companies in the multi-employee pension plans go out of business, the remaining companies end up with the liability.”

The extent of the potential liability was estimated by YRC Worldwide at $4 billion in its annual report filed with the Securities and Exchange Commission, while the tally would be at least $800 million for Arkansas Best, Davidson told Transport Topics May 18.

Those two companies — the largest less-than-truckload carriers contributing to the funds — would face liability if they failed to make fund payments.

Davidson said he believed Congress would take up a legislative solution later this year, but he declined to give more details.

The multi-employer pension pressure has been building since the Motor Carrier Act of 1980 deregulated the industry. Legislation was passed less than a year later that obligated surviving companies to pay benefits for retirees of failed competitors, whose pensioners are known as “orphans.”

“Deregulation had the inevitable effect of forcing union companies out of business,” said Herve Aitken, a Washington transportation attorney who specializes in pension issues. He added that he believes the companies will seek legislation.

“In 1980, the LTL industry was [85% to 90%] unionized. Now it is just about the opposite,” Aitken said.

In total, the 2007 asset value of the multi-employer funds was about $65 billion, with liabilities of more than $111 billion — or a 58% funding level, said a report by Wolfe Research issued May 18.

The precise level of current multi-employer pension funding isn’t clear, and current proportions of active workers to beneficiaries are not known, because the funds’ haven’t filed comprehensive reports for 2008, YRC said in its annual report. In the funds’ 2007 reports, most listed more beneficiaries than active contributors.

“We believe orphans are responsible for a material proportion of the underfunded status of Teamster pensions and could cause further deterioration of Central States Pension Fund’s status and therefore increase YRC Worldwide’s and Arkansas Best’s withdrawal liabilities,” said the report.

“We expect their managements along with the Teamsters to lobby the Obama Administration for new multi-employer pension legislation to gain relief from these liabilities,” the report said.

The Central States fund provides benefits for about 40% of YRC’s employees, the company said. Its total beneficiaries now top half a million. Its funded status was listed as 42% in Wolfe’s report.

“We are on record as supporting pension reform,” Teamsters spokes-man Galen Munroe told TT. Thomas Nyhan, administrator of the Central States fund, has not returned multiple calls seeking comment and additional information.

YRC now pays between $34 million and $45 million a month for pension obligations and is negotiating with the union and the fund to replace cash payments with real estate collateral (click here for related story).

“We believe that our portion of the contingent liability in the case of a full withdrawal or termination from all of the multi-employer pension plans to which we contribute would be an estimated $4 billion on a pre-tax basis before taking into consideration the recent market declines,” YRC said.

Central States’ asset value declined 29% last year and now stands at $17.4 billion, according to a report by an independent special counsel.

UPS in 2007 paid $6.1 billion to exit from Central States, although the company’s workers still participate in other funds, spokesman Norman Black told TT. Its UPS Freight Teamsters workers participate in a company pension plan, he said.

Not all pension funds are in Central States’ position.

The Western Conference of Teamsters Pension Trust has said its plan currently is about 85% funded, based on a 2009 filing. Like Central States, that fund also has more than 500,000 participants, but only 45% are contributing to the plan — the balance are retired or laid off.