Numerous scandals have involved the Teamsters, Central States, Southeast and Southwest Areas Pension Fund.
One of the most notorious pension funds -- and one whose abuses helped the push for pension law reform -- was the Teamsters, Central States, Southeast and Southwest Areas Pension Fund.
The Central States fund had been linked to organized crime since the 1950s, when some of its assets helped finance the early hotels and casinos in Las Vegas.
The questionable investments given to equally questionable characters continued into the 1970s, especially during the reign of Jimmy Hoffa as president of the union.
After Frank Fitzsimmons replaced Mr. Hoffa as president in 1967, the fund hired five external investment managers to supplement the in-house asset management. In February 1974, seven trustees were indicted on charges of making unauthorized loans of $1.4 million from the then $1.2 billion fund.
But a year later, in an apparent resurgence of Mr. Hoffa's influence within the union and the fund, four of the outside managers were fired. Fund officials claimed the trustees had lost faith in the equity markets.
Just a few months later, Alvin Baron, asset manager of the fund, resigned his post and became a "consultant" in Las Vegas to Allen R. Glick, owner of several casinos and past recipient of loans from the fund totaling more than $80 million.
Mr. Baron was replaced by Daniel J. Shannon, executive director of the fund, a former Notre Dame football star, Air Force captain, former president of the Chicago Park District and an accountant by training. Mr. Shannon promised to clean up the fund.
INVESTIGATION BEGINS
In 1976, a joint Labor Department-Justice Department task force began investigating the fund. Two influential trustees, William Presser and Frank Ranney, resigned after they refused to testify, citing Fifth Amendment rights.
Later that year, six management and five labor trustees resigned and were replaced by new faces, but government officials regarded the changes as largely window dressing. And in December, Mr. Baron was indicted on charges of wire fraud, based on a $200,000 kickback he received on a $1.3 million loan from the fund to a cemetery owner. He was convicted two years later.
Also at the end of 1976, the Teamster fund entered into negotiations with the Internal Revenue Service and the Labor Department about how fund assets might be managed to stave off a move by the IRS to rescind the plan's tax-exempt status.
In January 1977 the fund hired additional in-house staff to help sell off enough of its mortgage holdings to get the allocation in mortgages down to 50% of the assets from 80%. The fund imposed a moratorium on new loans, and all of its annual contributions of $173 million a year were earmarked for the securities markets until the allocation was reached. At the same time, it invested $20 million in guaranteed investment contracts with five insurance companies.
'MANAGING FIDUCIARY'
By mid-'77 the first real step in cleaning up the Central States fund occurred when trustees appointed Equitable Life Assurance Co. as "managing fiduciary" of the $1.5 billion in assets. Under the arrangement, Equitable had exclusive authority to develop investment policies for five years. It also had authority to hire and fire money managers and allocate new cash flow among them.
At the same time, the trustees appointed Equitable as real estate manager for properties east of the Mississippi and Victor Palmieri & Co. as manager of properties west of the Mississippi. The portfolio Palmieri found itself managing for the Teamsters' fund consisted heavily of Las Vegas casinos and hotels and southern California resorts such as Rancho LaCosta and Rancho Los Penasquitos.
But the hiring of Equitable did not end the turmoil. In August, Labor Department officials told the Senate Permanent Investigations Subcommittee it could not tell if reports that the fund had lost up to half of its assets through fraudulent or bad loans were correct because there was no accurate figure as to the fund's size or rate of return.
In February 1978, the Department of Labor filed suit against Mr. Fitzsimmons, Mr. Shannon and 17 former trustees charging they violated their fiduciary duties and seeking repayment of the losses the department alleged the fund had suffered through improper transactions.
Dan Shannon was fired as executive director of the fund and replaced by John Dwyer, an accountant and close friend of Roy L. Williams, a powerful Teamsters official. At the same time, the fund's two actuarial consultants were fired, as was its accounting firm.
Mr. Williams apparently wanted to gain control of the fund to help his bid to replace Mr. Fitzsimmons as union president, and he even wanted to fire Equitable. The union's trustees, however, could not fire Equitable without Labor Department agreement, and as the decade ended, the fund remained in Equitable's hands.
CONSENT DECREE
In the fall of 1982, as the first contract with Equitable was coming to an end, the Teamsters agreed to a consent decree with the Labor Department that required independent asset management -- and other restrictions -- for at least 10 years.
In late 1983, seeking a "fresh approach" to the management of its assets, the union hired Morgan Stanley Inc. as named fiduciary of the pension fund. At the time, Morgan officials hoped to also manage some of the union's then $4.7 billion in assets, but that was not allowed under the consent decree with the Labor Department.
Four years later, Central States trustees sought approval for hiring a second named fiduciary. By that time, the fund had $18.2 billion managed by 35 managers in 60 portfolios.
The trustees initially filed a motion in U.S. District Court in Chicago in May 1997 for approval to hire two named fiduciaries and to allow the named fiduciary to manage up to $1 billion of the fund.
Trustees were concerned about fees charged by Morgan Stanley (now, Morgan Stanley Dean Witter Co.) and its performance. They also wanted to diversify the oversight authority as a way to protect the fund. As a concession to Morgan Stanley, and to encourage prospective bidders, the Central States trustees wanted the authority to permit the named fiduciaries to manage some of the fund's assets directly.
That motion was withdrawn in September, because of disagreement with the Department of Labor, but was filed again -- and approved -- the following June.
The pension fund then issued requests for proposals to 20 firms, with the asset transfer expected in January 1999.
