Union Fund Exit Would Cost UPS Up to $4 Billion
By Daniel P. Bearth, Staff Writer
This story appears in the May 28 print edition of Transport Topics. Click here to subscribe today.
UPS Inc., which is negotiating to leave the underfunded Teamsters Central States Pension Fund, would have to pay about $3.6 billion to $4 billion to cover its share of the fund’s obligations, according to industry sources.
Teamsters officials said the parcel giant has offered to create a new, jointly administered, company-funded pension plan for full-time employees to replace the existing plan. The company would pay an unspecified lump sum to withdraw from Central States, but would continue to contribute to other Teamsters pension and health and welfare funds (5-14, p. 1).
Van Skillman, president of the Association of Parcel Workers of America — an association of UPS employees that seeks to replace the Teamsters as bargaining agent there — said UPS would pay $4 billion to Central States, the largest of more than two dozen multi-employer pension and health and welfare plans that provide benefits to employees at unionized trucking companies.
“Let’s face it, our Teamsters pensions are a mess,” APWA said in a statement on its Web site. Skillman was unavailable for comment.
Moody’s Investors Service, a credit rating agency, said the average cost for transportation firms to leave underfunded multi-employer plans is 3.1 times their annual contribution.
UPS contributed $1.16 billion to various Teamsters pension and health-benefit plans, most of it to Central States, in 2004, according to the most recent data available. Moody’s said that implies a total fund liability of about $3.6 billion.
Central States has one of the lowest funding rates among Teamsters funds. Based on annual reports to the Labor Department, Central States had assets of $18.7 billion and liabilities of $32.6 billion in 2004, a funding ratio of 57%. The Western Conference of Teamsters, the second-largest multi-employer fund, reported assets of $28.1 million and liabilities of $30.3 billion, a 93% funding ratio.
UPS, the largest single employer of Teamsters, ranks No. 1 on the Transport Topics 100 list of the largest U.S. and Canadian for-hire carriers, with revenue of $42.5 billion in 2005.
A UPS spokesman declined to comment, and Teamsters officials said they have hired actuaries to determine the effect on Central States if UPS withdraws. Officials of the Central States fund would not comment. The actual amount of UPS’ withdrawal liability is subject to negotiations, union officials said.
The existing UPS-Teamsters contract expires in July 2008; the parties began negotiations over a replacement pact in September.
Ken Hall, chairman of the Teamsters Parcel and Small Package Division, said while the union’s negotiating committee “will not consider any plan that jeopardizes the benefits of members in Central States or members in any other Teamsters fund,” the UPS plan would be “seriously evaluated and compared to the other options.”
Teamsters for a Democratic Union, a group opposing the union’s current leadership, said the requirements of the 2006 pension reform law will necessitate future increases of at least 8% per year in contributions from UPS. “At least $2.40 an hour [of total wages] will go into the pension fund over the next contract, probably a good bit more,” TDU said on its Web site.
TDU officials said allowing UPS and other large carriers to withdraw would weaken the union because the multi-employer pension funds “are a key selling point to bringing in members.”
If UPS succeeds in withdrawing from Central States, Robert Davidson, chief executive officer of Arkansas Best, the parent of ABF Freight Systems, has said he wants to do the same thing in negotiating a new National Master Freight Agreement. That contract, which covers about 80,000 workers at less-than-truckload carriers, will expire in March.
“Most of the multi-employer pension funds are underfunded, a fact that will be made more visible by the Pension Protection Act of 2006,” Davidson told Transport Topics last week.
That law requires increased employer contributions to pension funds that are less than 80% funded, beginning in 2008. Plans that fall below the 65% threshold are prohibited from increasing benefits.
Underfunding occurs when a fund’s assets are insufficient to cover the projected cost of benefits it must pay. Underfunding rates vary widely, depending on a plan’s investment returns, number of participants and benefit levels.
Many of the Teamsters funds have been hurt in recent years by consolidation in the less-than-truckload sector, including the 2002 bankruptcy of Consolidated Freightways Corp.
Davidson said ABF contributes to 27 different Teamsters funds, “each of which has overhead costs associated with financial, legal, administrative and fiduciary oversight.”
“It is possible for us to provide comparable benefits in a secure, company-specific plan at costs that are actually less than our current costs,” Davidson said.
Bill Zollars, chairman of YRC Worldwide — the parent of four unionized LTL carriers — said the company had not decided whether to join ABF in seeking to withdraw from multi-employer pension plans. “We’ll look at it,” he said. “Like any investment decision, we’ll consider the cost and return.”
Moody’s said companies contributing to multi-employer pension plans increased their contributions an average of 10.3% annually over the past three years, while their revenue grew 7.2% and employment increased 1%. In many cases, Moody’s said, unions have accepted lower wage increases in exchange for higher pension funding.
This story appears in the May 28 print edition of Transport Topics. Click here to subscribe today.
UPS Inc., which is negotiating to leave the underfunded Teamsters Central States Pension Fund, would have to pay about $3.6 billion to $4 billion to cover its share of the fund’s obligations, according to industry sources.
Teamsters officials said the parcel giant has offered to create a new, jointly administered, company-funded pension plan for full-time employees to replace the existing plan. The company would pay an unspecified lump sum to withdraw from Central States, but would continue to contribute to other Teamsters pension and health and welfare funds (5-14, p. 1).
Van Skillman, president of the Association of Parcel Workers of America — an association of UPS employees that seeks to replace the Teamsters as bargaining agent there — said UPS would pay $4 billion to Central States, the largest of more than two dozen multi-employer pension and health and welfare plans that provide benefits to employees at unionized trucking companies.
“Let’s face it, our Teamsters pensions are a mess,” APWA said in a statement on its Web site. Skillman was unavailable for comment.
Moody’s Investors Service, a credit rating agency, said the average cost for transportation firms to leave underfunded multi-employer plans is 3.1 times their annual contribution.
UPS contributed $1.16 billion to various Teamsters pension and health-benefit plans, most of it to Central States, in 2004, according to the most recent data available. Moody’s said that implies a total fund liability of about $3.6 billion.
Central States has one of the lowest funding rates among Teamsters funds. Based on annual reports to the Labor Department, Central States had assets of $18.7 billion and liabilities of $32.6 billion in 2004, a funding ratio of 57%. The Western Conference of Teamsters, the second-largest multi-employer fund, reported assets of $28.1 million and liabilities of $30.3 billion, a 93% funding ratio.
UPS, the largest single employer of Teamsters, ranks No. 1 on the Transport Topics 100 list of the largest U.S. and Canadian for-hire carriers, with revenue of $42.5 billion in 2005.
A UPS spokesman declined to comment, and Teamsters officials said they have hired actuaries to determine the effect on Central States if UPS withdraws. Officials of the Central States fund would not comment. The actual amount of UPS’ withdrawal liability is subject to negotiations, union officials said.
The existing UPS-Teamsters contract expires in July 2008; the parties began negotiations over a replacement pact in September.
Ken Hall, chairman of the Teamsters Parcel and Small Package Division, said while the union’s negotiating committee “will not consider any plan that jeopardizes the benefits of members in Central States or members in any other Teamsters fund,” the UPS plan would be “seriously evaluated and compared to the other options.”
Teamsters for a Democratic Union, a group opposing the union’s current leadership, said the requirements of the 2006 pension reform law will necessitate future increases of at least 8% per year in contributions from UPS. “At least $2.40 an hour [of total wages] will go into the pension fund over the next contract, probably a good bit more,” TDU said on its Web site.
TDU officials said allowing UPS and other large carriers to withdraw would weaken the union because the multi-employer pension funds “are a key selling point to bringing in members.”
If UPS succeeds in withdrawing from Central States, Robert Davidson, chief executive officer of Arkansas Best, the parent of ABF Freight Systems, has said he wants to do the same thing in negotiating a new National Master Freight Agreement. That contract, which covers about 80,000 workers at less-than-truckload carriers, will expire in March.
“Most of the multi-employer pension funds are underfunded, a fact that will be made more visible by the Pension Protection Act of 2006,” Davidson told Transport Topics last week.
That law requires increased employer contributions to pension funds that are less than 80% funded, beginning in 2008. Plans that fall below the 65% threshold are prohibited from increasing benefits.
Underfunding occurs when a fund’s assets are insufficient to cover the projected cost of benefits it must pay. Underfunding rates vary widely, depending on a plan’s investment returns, number of participants and benefit levels.
Many of the Teamsters funds have been hurt in recent years by consolidation in the less-than-truckload sector, including the 2002 bankruptcy of Consolidated Freightways Corp.
Davidson said ABF contributes to 27 different Teamsters funds, “each of which has overhead costs associated with financial, legal, administrative and fiduciary oversight.”
“It is possible for us to provide comparable benefits in a secure, company-specific plan at costs that are actually less than our current costs,” Davidson said.
Bill Zollars, chairman of YRC Worldwide — the parent of four unionized LTL carriers — said the company had not decided whether to join ABF in seeking to withdraw from multi-employer pension plans. “We’ll look at it,” he said. “Like any investment decision, we’ll consider the cost and return.”
Moody’s said companies contributing to multi-employer pension plans increased their contributions an average of 10.3% annually over the past three years, while their revenue grew 7.2% and employment increased 1%. In many cases, Moody’s said, unions have accepted lower wage increases in exchange for higher pension funding.
