The Teamsters union and large trucking companies set up a
defined benefit pension plan decades ago. Called the Central States plan, this
retirement fund has suffered massive losses due to market conditions, generous
benefit promises, and the de-unionization of the trucking industry.
Facing the prospect of depletion in ten years, the plan’s
administrators petitioned the U.S. Department of Treasury for permission to
slash benefits paid to current retirees (by an average of 23%). Why? To
preserve the fund’s liquidity beyond 10 years.
To make the change, the plan would need the approval of the
Department of Treasury. Yesterday, that agency rejected the proposal. The
reason: proposed cuts would not be shared equitably among retirees; and the
plan’s funding assumptions were too optimistic. This implies that the remaining employers would have to contribute more—but good luck making that
happen in this distressed industry.
The upshot: the funding problem has been kicked down the
road, but not avoided or repaired.
For a public sector version of this, start with Illinois and
Pennsylvania—two states with massively underfunded plans that require reform or
huge tax increases (or a blend). And then see Puerto Rico, which missed its
first bond payments this week.
The ultimate implication-- unless markets dramatically improve-- is that young people will pay massively for retirees, or retirees will lose massively on promised benefits. Happy Mother's Day-- for now.
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