Pension Fund Will Go Broke in 10 Years, Director Says

This story appears in the June 7 print edition of Transport Topics.

Thomas Nyhan, executive director of the Central States Pension Fund, told a Senate committee that the fund, which provides retirement benefits for a number of unionized trucking companies, will become insolvent without changes to federal law.

“Because of a confluence of forces, most notably the dramatic consolidation in the trucking industry and the most significant recession in decades, the Central States Fund faces an unprecedented crisis,” Nyhan said May 27 before the Senate Health, Education, Labor and Pensions Committee. “If no action is taken, the fund is projected to be insolvent in the next 10 to 15 years.”

Nyhan said he approves of a bill introduced by Sen. Robert Casey (D-Pa.) to help multi-employer pension funds stay healthy by shifting responsibility for so-called “orphan retirees,” or workers whose former employers have closed, to the federal government.

In his testimony, Nyhan said that, since deregulation, the fund has lost more than 600 large employers to bankruptcies, and of the 50 largest contributors to the fund in 1980, only four remain in business today.

The Central States fund is one of the largest multi-employer pension funds in the country, and counts among its members a number of trucking companies, including YRC Worldwide Inc. and Arkansas Best Corp.

“We think Sen. Casey’s proposal is a remedy,” Nyhan said, “and would preserve the fund’s solvency.” Going forward, Nyhan said, the proposal, if implemented, “would preserve jobs, protect the contributing employers and ensure the retirement security of our members.”

Casey said he believed there are “several actions that Congress must take this year to ensure the survival of multi-employer plans,” most notably passing the bill he introduced in March (click here for previous story).

In a statement posted on the Teamsters union website, Kimberly Freeman Brown, executive director of American Rights at Work, a labor policy group affiliated with the union, said that both unions and employers “have made great sacrifices to maintain the solvency of multi-employer pension funds.”

“Extraordinary self-help measures will not be enough,” she said. “Legislative relief is needed now.”

Casey’s bill would allow funds such as Central States to spin off their obligations to orphan retirees into a separate fund, then allow those obligations to be backed by the Pension Benefit Guaranty Corp., the federal agency that guarantees the benefits for workers whose pension funds become insolvent.

However, Phyllis Borzi, who heads the Employee Benefits Security Administration division of the Labor Department, said the Obama administration had some concerns about the bill.

Borzi said the bill could create a situation where the PBGC was treating workers differently because the agency would be required to pay out the full benefits to orphaned workers, which can be more than the maximum guarantee of about $13,000 annually for a worker with 30 years of service.

Nyhan said 40% of benefits it pays annually goes to orphaned retirees whose employers have shut their doors, amounting to “a tax of over $1 billion a year.”

The burden caused by the orphaned retirees is a key reason why “new employers are unwilling to subject themselves to the contingent withdrawal liability of these plans.”

Nyhan said that in addition to being unable to attract new employers to the fund, companies in the fund “are now leaving this plan because of their concern about the instability of it — UPS being the prime example.”

In 2007, as part of its latest contract with the Teamsters, UPS Inc. agreed to pay $6.1 billion to distance itself from Central States (click here for previous story).

“There’s nothing else we can do to expand our employer base at this juncture,” he said.

The Senate HELP Committee has yet to mark up Casey’s bill. A similar bill introduced in the House by Rep. Earl Pomeroy (D-N.D.) in October also has yet to be moved.

However, the House did pass as part of a large package of tax-break extensions and other financial measures, a bill that gives pension funds additional time to become fully funded in light of the recent economic downturn.

That bill now goes to the Senate for its consideration.