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A pending plan to cut benefits to members as part of a rescue plan for the Teamsters Central States, Southeast & Southwest Areas Pension Fund, Rosemont, Illinois, is facing challenges even before the U.S. Treasury Department acts on the fund's application.
Current and former plan participants of Kroger Co., Cincinnati, last week sued the $17.8 billion Teamsters Central States over the rescue plan. And United Parcel Service Inc., a former participating employer, challenged the legality of the rescue plan, which would enable the fund to reduce benefits, including those of current retirees.
The Treasury Department is expected to rule early this month on the rescue plan.
Current and former Kroger participants sued Central States April 25 because the participants want to leave the plan and start a new one before the Treasury Department acts on the pension fund's benefit reduction proposal.
UPS, Atlanta, argued in an April 28 earnings presentation that the benefit reduction application by the Teamsters Central States is not legal.
The Kroger case plaintiffs, current and retired warehouse workers for Kroger Co., filed a complaint in U.S. District Court in Chicago, arguing that Central States trustees' refusing to consider an additional plan is a breach of fiduciary duty because it harms participants.
The Teamsters union negotiated a proposal to remove Kroger participants from Central States and create a new plan for Kroger employees, with the company agreeing to absorb the increased withdrawal liability, according to the federal court complaint.
Because Central States trustees “flatly refused to consider” after deliberating for just five days, the plaintiffs are asking the court to order reconsideration of the proposal, to appoint an independent fiduciary to judge the idea and to negotiate an arrangement with Kroger.
If that doesn't happen before the existing proposal expires June 15, “the Kroger participants will be trapped in a plan that is about to cut their benefits and still faces likely insolvency,” the court complaint said.
Thomas Nyhan, executive director and general counsel at the Central States pension fund, said in an e-mailed statement that the claims by Kroger and the Teamsters union “are without merit. As fiduciaries, Central States' trustees have a duty to safeguard the retirement benefits of all of our 407,000 participants — not a select few from a particular employer. Central States is prepared to defend against this complaint, and we are confident that Central States will prevail by demonstrating that the trustees' actions are consistent with their fiduciary duties.”
UPS, which in 2007 withdrew from the Central States pension fund as part of a collective bargaining agreement with the International Brotherhood of Teamsters, might be required to pay $3.2 billion to $3.8 billion in benefit payments if the pending benefit reduction application is approved by the Treasury Department.
A “backstop agreement” in the 2007 bargaining agreement 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” only to its participants, UPS spokesman Steve Gaut said in a telephone interview.
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 in 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. 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 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 other group. There are 100,377 Tier I participants, 322,560 Tier II participants, and 48,249 Tier III participants.
Hazel Bradford and Rob Kozlowski write for Pensions & Investments, a sister publication of Business Insurance.
Without additional legislative changes, the Pension Benefit Guaranty Corp.’s insurance program that partially guarantees benefits to multiemployer pension plan participants is likely to fail within the next decade, the PBGC said Thursday.