Teamsters Central States, Southeast & Southwest Areas Pension Plan, Rosemont, Ill., acknowledged “clearly the math will never work” on funding its defined benefit plan, said a new website it created to provide details of a “rescue plan” it is developing.
The pension fund had assets of $17.8 billion as of Dec. 31, down from the $18.7 billion a year earlier, said David H. Coar, Central States independent special counsel, in a report to Judge Milton I. Shadur of U.S. District Court in Chicago, who monitors the fund.
The pension fund is projected to become insolvent in 2026, making it “unable to pay any benefits to current and future retirees,” the website said.
“However, even record investment returns in the short term will not be nearly enough to resolve the fund's imbalance,” said the rescue website.
The pension fund's investments returned 6.86% for calendar year 2014, underperforming the 7.33% median return of its benchmark of the Wilshire Trust Universe Comparison Service, Mr. Coar wrote in the report. Wilshire Associates produces the TUCS benchmarks.
For each of the three- five- and 10-year periods ending Dec 31, the fund's investment returns exceeded the universe's respective median return, Central States said in a statement Thursday.
The pension fund's asset allocation as of Dec. 31 was 61% equities, 34% fixed income, 4% other and 1% cash, the report said. The plan had $35 billion in liabilities as of Dec. 31, for a 50.8% funded level.
Northern Trust Asset Management, the fund's named fiduciary, “is responsible for the fund's asset allocation and continually monitors each investment manager's performance and makes changes when appropriate,” the Central States statement said.
Mary Beth Hartford, Central States spokeswoman, didn't respond to a request for information about investment managers.
“For every $3.46 that the fund pays out in pension benefits, only $1 is collected from contributing employers, which results in an annual $2 billion shortfall,” the website said. “That math simply doesn't work.”
Central States this summer expects to disclose details of the rescue plan that might cut benefits for both active and retires, the website said.
The pension fund reaffirmed its certification as being in “critical and declining status” for the fund's year beginning Jan. 1, a status that is assigned to multiemployer plans that are less than 65% funded and which the Central States has had since 2008.
The Multiemployer Pension Reform Act, signed into law by President Barack Obama on Dec. 16, allows severely underfunded multiemployer plans to cut benefits. Any proposed cuts must be approved by the Department of the Treasury and then voted on by the participants, although the Treasury Department makes the ultimate decision on benefit reductions based upon its assessment of the financial risk posed if a “systemically important plans like the Central States” should fail, the website said.
“Our goal is to stabilize the Central States pension fund so that we can continue to pay benefits to our participants now and for years to come,” the website said.
Any rescue plan would become effective next year, the website said.
Plan officials blame the underfunding on unfavorable demographics; the 1980s deregulation of the trucking industry, which resulted in the loss of 13,000 employers that contributed to the pension fund; a troubling economy; more than three times as many retirees as active members; and poor investment markets, the website said.
