WASHINGTON -- Officers of Teamsters local unions participating in the Teamsters Affiliates Pension Fund are contemplating filing a lawsuit against former Teamsters President Ron Carey and two other top union officials, charging them with violating ERISA.
Mr. Carey; Thomas Sever, general secretary and treasurer of the Teamsters union in Washington; and Aaron Belk, vice president, act as trustees of the Affiliates Pension Fund. The fund is administered and managed by the International Brotherhood of Teamsters on behalf of officers and staff of 559 participating local unions across the country.
The plan, with $670.6 million in assets, covers officers and staff of local unions, often not covered by other Teamsters pension plans.
Mr. Carey has been on unpaid leave of absence following charges of financial wrongdoings in connection with his 1996 re-election campaign.
Officers of as many as 50 Teamsters local unions have expressed interest in participating in the lawsuit, according to Joel LeFevre, secretary and treasurer of Teamsters Local 840, New York, who is organizing the suit.
Mr. LeFevre and Anthony Rumore, president of the Teamsters Local 812 in Scarsdale, N.Y., already have filed a complaint with the Labor Department, charging the three trustees with failing to administer the plan solely for the benefit of participants, as required under the Employee Retirement Income Security Act.
In their Feb. 12 complaint, Messrs. LeFevre and Rumore also charged those ERISA violations constituted violations of the Teamsters' constitution and election rules.
Messrs. LeFevre and Rumore also have filed a complaint with the Independent Review Board, a federal agency that has been overseeing the Teamsters for nearly a decade.
Marc Machiz, associate solicitor at the Labor Department, declined to comment on any investigation of Messrs. LeFevre and Rumore's claims. An official in the office of Charles M. Carberry, chief investigator at the review board, also declined to comment on any investigation. Mr. Carberry was not available.
Richard Jasper, administrator of the affiliates pension fund, did not return calls seeking comment. But in a statement, the national union dismissed Messrs. LeFevre and Rumore's charges as gripes about losing "an extra pension." The complaint was filed by several officials "who are unhappy with an important reform made in Teamster finances," the statement noted.
"In the past, these officials, who already had pensions from other levels of the union, also get pensions from the Affiliates Pension Plan without their members being consulted," the statement said.
But Mr. LeFevre, and officers of other locals expressed amazement at the statement.
"It is pension accounting fraud," Mr. LeFevre said, charging Teamsters union leaders with "improper use of a fund in order to accomplish an illegal act," of assessing additional dues funneled into Mr. Carey's 1996 reelection bid. Mr. LeFevre alleged a $1 special monthly assessment on members since 1994, totaling around $35 million by the 1996 elections, was used to hire an army of workers for Mr. Carey's election campaign.
In recent hearings held by the House Oversight and Investigations Subcommittee looking into the union's financial affairs, Mr. LeFevre described what he claims was a complicated scheme in which Mr. Carey and his administration attempted to use the pension fund to mask the national union's true financial picture.
In order to impose the special assessment on members, the national union needed to show its own assets were below $20 million, Mr. LeFevre said. And to lower its net worth, the national union threw a $28.2 million liability of the affiliates pension plan on its own books -- even though the plan is fully funded, and the national union stopped making contributions (garnered from membership dues) to the plan at the end of 1991.
If Mr. LeFevre's charges are true, the national union's tactic flies in the face of financial accounting rules, which require plan sponsors participating in multiple employer plans -- in this case the local unions -- to show a proportionate share of the fund's assets and liabilities on their own books, said David Cahn, an actuary with Federation Pension Bureau, a New York actuarial consulting firm. The firm was hired by Mr. LeFevre to investigate the affiliates pension fund's finances.
At the same time, Mr. Carey and the plan's other trustees froze the plan's benefit accruals and the number of participants in December 1994, after determining no additional contributions were needed through 1999.
In fact, the national union had already stopped contributing (from the $3.90 monthly membership dues paid by locals) into the affiliates pension plan in December 1991. Nor has the national union contributed any of the $1 monthly special assessment into the pension plan.
The national union was able to stop making contributions to the plan -- and freeze it -- and still show the plan had a $28.2 million liability because of the difference between pension costs for accounting purposes and for funding purposes, Mr. Cahn said.
Employers can stop making contributions to a plan when a plan is fully funded for ERISA purposes, yet, for accounting purposes, the plan's sponsors may still have to report a cost, even though they are not making any contributions. And that is what the national union did.
According to the plan's annual financial reports for 1996, the latest available, the affiliates plan had assets of $559.9 million at the beginning of the year. And it reported an accrued liability of $509 million for the year, making it seem overfunded at first glance. In fact, by taking into account cumulative credits of $81 million for previous employer contributions in excess of the minimum funding required, the plan is close to, but not overfunded on an actuarial basis.
The fair market value of assets (unrecognized for accounting purposes) are well in excess of the accrued liabilities.
form over substance
As a result, the $28.2 million liability (the net pension cost for the years since 1992 in which no contribution was made, less the reduction of liabilities from freezing the plan) reported by the national union is a "liability with more form than substance," testified Frederick W. Smolen, an independent investigative accountant, hired by lawmakers to look into the Teamsters financial affairs. "The liability, which ranged between $27 million and $31 million since 1993, has appeared in the financial statements (of the national union) every year since 1993 even though the plan is fully funded," he testified.
Officials at Segal Advisors, the plan's outside actuaries, declined to comment.
Stephen R. Leser, partner at Grant Thornton LLP, the plan's outside auditors, also declined to comment.
But officers of several Teamsters locals agree something seems amiss in the management of the affiliates pension plan.
Michael Riley, secretary and treasurer of the Teamsters Local 986 in Los Angeles, who intends to participate in the lawsuit, described the union leadership's acts as "a fraud and a theft." Teamsters union leaders "who depict themselves as reformers are ripping us off and money from the local unions that was dedicated to the pension fund and using it for other purposes that was never authorized," he said.
"What they did was wrong," noted Roy Atha, secretary and treasurer of Teamsters Local 65 in Springfield, Ohio, observing many staffers in the offices of local unions depend on that pension plan because they are not covered by any other retirement fund.
"I think there should be a restatement of the pension plan," said Mr. Atha, who is asking lawmakers to testify in ongoing hearings about the Teamsters financial affairs.
At the same time, Bill Moore, president of the Teamsters Local 696 in Topeka, Kan., has asked his attorneys to investigate the matter. "If the Teamsters used (the pension plan) to fraudulently get an assessment out of members, that is a criminal act, and somebody should be responsible for it," he said.
But before they proceed with a lawsuit, Messrs LeFevre and Rumore want to give federal authorities an opportunity to conduct their own investigations.
Mr. LeFevre said he is going to wait a few months before proceeding with a lawsuit. "We are looking for a signal (from federal officials) that we don't have to spend the money" on a lawsuit, Mr. LeFevre said. But, "So far, we are not getting it."