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2017-01-02 15:32:08
Fair Game: New York’s Teamsters May Have Their Pensions Cut. What Went Wrong?

As troubled pension funds go, the New York State Teamsters Conference Pension and Retirement Fund, with some $1.3 billion in assets, is by no means the largest. Neither is it in the direst financial shape, even though just 44.8 percent of its obligations are funded.

But given that participants in this fund may face benefits cuts of at least 20 percent, learning what went wrong could be instructive not only for other imperiled retirement funds but also for taxpayers who may have to cover the shortfalls.

Like many pension plans, the Teamsters fund was hurt badly by the steep market decline of 2008. Those overseeing the fund also tie its troubles to the decline of unionized employment in the trucking industry, which has translated into fewer contributions to the plan.

Both of those factors are real. But an examination of the fund identified other pernicious forces: most notably, illiquid, opaque and high-cost investments. At least 40 percent of the fund is in so-called alternative investments, including expensive private equity deals, hedge funds and real estate.

For a fund poised to suspend benefits, holdings like these are especially problematic.

Eileen Appelbaum, senior economist at the Center for Economic and Policy Research, a nonpartisan organization in Washington, said she was not surprised by the findings on the Teamsters fund.

“Wall Street promises these really high returns, but private equity has not delivered since 2006, and hedge funds have been losing money for a very long time,” Ms. Appelbaum said. “It’s not a sensible way to proceed.”

Accrued liabilities in the Teamsters pension, which benefits 34,000 current and former truckers in New York, exceed its assets by $1.8 billion. A year ago, the fund’s actuary certified that the plan was in a “critical and declining status” and projected an accumulated funding deficiency within four years. Within 19 plan years, the actuary said, the fund would be insolvent.

To tackle these woes, the pension trustees submitted an application in August to the United States Treasury to reduce benefits. The trustees acknowledged the pain and said their proposal was the only realistic way “to save the fund from financial failure and help ensure that we are able to continue to pay benefits to all New York State participants in the future.”

Under the proposal, subject to certain limitations, all active participants in the pension would see their monthly benefits reduced by 20 percent; retirees and other nonactive participants would see a 31 percent reduction.

Some fund beneficiaries say the fund’s decline took them by surprise; many have submitted comments to the Treasury against the plan.

One pension participant, Mark Greene, went further. Head of a nonprofit advocacy group called the Teamsters Alliance for Pension Protection, Mr. Greene, 44, raised money from fellow workers to study what had happened at the fund. He said it was the first such investigation among Teamsters pension funds as far as he knew.

“The plan has a terminal illness,” said Mr. Greene, a UPS employee for 28 years who drives a rig out of Kingston, N.Y. “Was it the result of natural causes, or was it self-inflicted? Let’s look at the role Wall Street played. That’s why we’re doing a forensic study.”

The report is the first step in understanding what went wrong at the pension, Mr. Greene added. To conduct the analysis, he hired Edward Siedle, a former Securities and Exchange enforcement lawyer whose company, Benchmark Financial Services, investigates money managers for investors and pension beneficiaries.

Mr. Siedle did not gain access to all the fund documents needed to do an exhaustive review. But the materials he had showed that opacity, expenses and illiquidity among the pension fund’s investments had risen significantly as its financial condition worsened. He estimated that the fund incurred $400 million in avoidable losses owing to underperformance and over $500 million in excessive expenses.

Eight trustees represent employers and workers in the Teamsters fund. Asked about the report’s findings, Kenneth R. Stilwell, the fund’s executive administrator, disputed them. In an email, he characterized the data in the report as “grossly inaccurate” and its conclusions “completely unreliable.”

“The fund’s investment performance has been strong,” Mr. Stilwell added. “Since March 2009, the fund has returned 10.8 percent per year. In 2016, the fund has returned 9.2 percent through September.” (Still, the fund’s return from the stock market’s bottom of 2009 doesn’t beat the gains in the broad equity market averages over that period.)

The trustees have told the plan beneficiaries that they have done everything possible to recover from the historic market losses in 2000 and 2008 and a declining active union population. And it is not surprising that the overseers of a troubled fund would quarrel with a post-mortem on its investment approach.

Indeed, Mr. Greene, the UPS driver, said he had encountered resistance when he suggested scrutinizing the pension fund. “Someone said, ‘What gives you guys the right to have a forensic study of our plan?’” he recalled. “I said, ‘It’s our money.’”

The Teamsters fund is what’s known as a multiemployer plan because it covers a group of workers paid by an array of employers. Such plans provide benefits to over 10 million participants across the country.

Troubled plans are in the minority. The Pension Benefit Guaranty Corporation, the government agency that backs the pensions of 40 million workers and retirees and takes over funds when they fail, estimated that multiemployer plans covering as many as 15 percent of those participants may become insolvent over the next 20 years. That percentage is sizable enough, though: The agency said its multiemployer insurance program was likely to run out of money by the end of 2025.

Participants in multiemployer plans are at far greater risk in a failure than those covered by a single employer. According to W. Thomas Reeder, the director of the Pension Benefit Guaranty Corporation, the maximum amount that a beneficiary would receive in a multiemployer plan collapse is a little under $13,000. Those in a failed single-employer plan could receive $60,000.

As for the Teamsters plan, it is unclear whether the proposed benefit cuts will be approved. The Treasury solicited comments on the proposal until recently, and it will rule in 2017.

Among those commenting on the proposal was Norman Stein, senior policy adviser at the Pension Rights Center, a nonprofit consumer organization focused on retirement security. He urged the Treasury to reject the plan, arguing that the pension’s overseers did not take reasonable measures to avoid insolvency, such as reducing its expenses and replacing current trustees with an experienced professional.

If fund beneficiaries wind up incurring benefit cuts, Mr. Siedle, the pension investigator, said Wall Street should share in the pain too. “The fund is paying higher fees today than before it got into trouble,” he said. “If you are going to impose an austerity program on recipients, then shouldn’t you also impose an austerity program on its Wall Street providers?”