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UPS claims proposed Central States benefit reductions illegal


United Parcel Service Inc., Atlanta, argued in an earnings presentation Thursday that the benefit reduction application by the Teamsters Central States, Southeast & Southwest Areas Pension Fund, Rosemont, Illinois, is not legal.

The company, which withdrew from the $17.8 billion pension fund as part of a collective bargaining agreement with the International Brotherhood of Teamsters at the end of 2007, might also be required to pay between $3.2 billion and $3.8 billion in benefit payments if the benefit reduction is approved by the Treasury Department.

A “backstop agreement” in that CBA stated that in the event “at some point in the future if Central States ever lawfully cut benefits to that group, UPS would provide a supplemental retiree benefit,” UPS spokesman Steve Gaut said. “As a result of that backstop agreement now, we are potentially liable for a future payment to those (UPS) employees that are retirees that are eligible, associated with what that benefit cut turns out to be,” Mr. Gaut said.

The Kline-Miller Multiemployer Pension Reform Act of 2014 requires the Treasury Department to approve an application if a pension fund's potential claims would cost the Pension Benefit Guaranty Corp. $1 billion or more. The Central States pension fund applied for the rescue plan last September with the Treasury Department. The pension fund is projected to become insolvent in 2025.

The Treasury Department's decision is expected on or before May 7.

Mr. Gaut said UPS also believes the benefit reductions laid out in the application are not legal under the provisions of that act. The MPRA imposed a tiered benefit reduction process specifically for the Central States plan. UPS argues that the benefit reduction application disproportionally affects participants in the third tier, which comprises the UPS participants.

“The ordering rule that's laid out in the (act) would indicate that there should be a progressive reduction of benefits starting at Tier I, then moving to Tier II then moving to Tier III,” Mr. Gaut said.

According to UPS, the average benefit reduction for Tier III participants is 53%, compared to 34% for Tier I participants and 29% for Tier II participants.

According to a January paper from the Congressional Research Service, Tier I includes benefits for participants that worked for employers that withdrew from the Central States pension fund without making the payments required to fully exit the plan and Tier III consists of the benefits for the UPS participants. Tier II consists of participants not in either group. There are 100,377 Tier I participants, 322,560 Tier II participants, and 48,249 Tier III participants.

UPS stated in its presentation it will pursue “all available legal remedies if the plan is approved.”

Rob Kozlowski writes for Pensions & Investments, a sister publication of Business Insurance.

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