UPS, Teamsters Reach Five-Year Deal

This story appears in the Oct. 8 print edition of Transport Topics.

UPS Inc. and the Teamsters union agreed Sept. 30 on a new five-year tentative contract that, among its provisions, would allow the parcel carrier to pay $6.1 billion to leave the union’s Central States Health & Welfare and Pension Funds.

The contract — agreed to 10 months before the current pact expires — must be ratified by the company’s 238,000 unionized employees, who will start voting at the end of October.

Company and union leaders hailed the accord in statements from Chicago, where the negotiations were completed.

Michael Eskew, UPS chairman and chief executive officer, said the contract “will allow us to remain competitive in a challenging marketplace, and the fact that we have reached an agreement earlier than at any time in our history is a testament to the skills and determination of all those involved in these talks.”

Teamsters President James Hoffa said the union had “negotiated an agreement that will greatly benefit our members at UPS, as well as Teamster members in other industries covered by pension and health and welfare funds that will receive the contribution increases.”

In 2002, the current contract was announced the same month the old contract expired. Before that agreement was announced, some shippers who were concerned about a potential strike shifted some of their freight to UPS rivals, which apparently encouraged UPS to seek a speedy resolution of the new negotiations.

The pension buyout provision is a major turning point in UPS’ campaign to distance itself from multi-employer pension plans such as Central States. The issue goes back at least to 1993, when Central States had to cut member benefits because it didn’t have enough money in its coffers. In the 1997 contract talks, UPS tried to leave the Central States fund, but was unable to gain the union’s approval.

The buyout attracted the notice of YRC Worldwide, the nation’s largest less-than-truckload carrier and the second-largest employer of Teamsters in trucking, behind UPS.

William Zollars, YRC chairman and CEO, said in an Oct. 1 statement that he believes “the funded percentage of the Central States plan is currently approximately 50% [of what it should be]. If the new UPS labor agreement is ratified and UPS makes its contractually agreed withdrawal payment to the Central States plan, YRC Worldwide believes that the funded percentage of the Central States plan would be approximately 70%.

“Due to the likely improvement in the funded status of the Central States plan, coupled with prudent actions that the plan trustees have previously taken . . . , our overall risk associated with contingent pension obligations is reduced,” Zollars said.

If ratified, the contract allows UPS to leave the largest and most publicized Teamster fund, but the company still would be part of about 20 other multi-employer union funds.

Ken Hall, director of the union’s parcel division, said in an interview that the contract he is recommending provides for “the largest increases in contributions ever by UPS — more than 50% increases.” Hall explained that the $6.1 billion payment to Central States fully compensates the plan for UPS’ departure.

Going forward, the Atlanta-based corporation will contribute to the 20 other multi-employer funds, plus a new UPS-only fund that would cover about 44,000 employees who had been Central States members. Hall said UPS/Teamsters retirees who are currently receiving checks from Central would continue to do so.

He also said the increases in pensions, wages and benefits are valued at $9 per hour over the life of the new contract, which extends through July 31, 2013.

Hall said two representatives from each of more than 200 locals will examine the contract first and then it will go to general membership during the second half of this month. He said the ratification results would be made public in late November or early December.

Hall and the company said they would release more details about the five-year proposal after employees are briefed.

Putting the buyout payment in perspective, UPS has averaged more than $1 billion in net income in recent quarters. The company also reported that on June 30, it had cash on hand and liquid securities worth $2.12 billion.

The company has not said how it will finance the payment, but ratings service Standard & Poor’s said Oct. 1 it would place UPS on “CreditWatch with negative implications.” S&P said UPS is one of only six industrial corporations nationwide with a “AAA” rating, the highest given.

UPS spokesman Norman Black said that the AAA rating, while desirable, is not an end in itself.

“Taking on debt for the right reason is the right thing to do. There will be a downgrading in our rating to some extent, but there is no question this is worth it.”

Black said that for $6.1 billion, UPS will get “the knowledge that the pensions are now safe for 44,000 of our employees.  . . . It’s quite probable that if we didn’t do this, then we would face at some point another cut in pension benefits.”

UPS Chief Financial Officer Scott Davis will address more financial issues related to the contract proposal and the buyout payment, Black said, during the company’s third-quarter earnings conference call Oct. 23.