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ATLANTA-The outcome of a high-stakes pension battle that stalled negotiations between United Parcel Service of America Inc. and the International Brotherhood of Teamsters could lead to increased employee benefit levels.
Atlanta-based UPS and the Teamsters returned to the bargaining table late last week with a federal mediator present in an effort to come to terms on pension and other issues that prompted the strike of 185,000 union workers.
In their rhetoric in discussing the pension issue publicly, both sides have claimed their plan is in the best interest of employees.
Other issues have not been publicly highlighted. UPS and the Teamsters, for example, each see advantages in controlling the funds. Another important element in the talks is that the withdrawal of UPS contributions would be no small blow to the multiemployer pension plans covering Teamster-represented employees. Other employers in multiemployer plans are watching closely to see if the giant delivery company can succeed in pulling out of the plans.
Both sides have proposed changes in current plan offerings.
UPS would pay about $700 million in withdrawal liability charges to pull out of the 31 multiemployer plans that provide pension benefits for the company's nationwide Teamster workforce. Under federal law, employers that leave underfunded multiemployer pension plans must pay a share of the plans' promised but unfunded benefits. UPS has pledged to replace the plans with a single defined benefit pension plan-under its control-for all full-time and part-time workers. The new plan, UPS says, would sharply increase benefit levels.
"We want a single, uniform plan across the country that is easily understood," a UPS spokeswoman said. She added the company's proposal would prevent any changes in benefits without the Teamsters' approval.
The UPS plan would pay future retirees, who had worked full time, monthly benefits equal to $100 for each year of employment with the company. A worker who spent 35 years at UPS would get monthly benefits of $3,500. Part-time workers would be eligible for monthly payments equal to $50 for each year.
The spokeswoman said that "on average," UPS' plan would pay workers 50% more than they are entitled to under the multiemployer plans. In the few cases where the multiemployer plan would pay a higher benefit, UPS has promised to match that benefit.
Charles Rader, director of the Teamsters' office of benefits in Washington, would not discuss specifics. But in its final proposal before the strike, the union indicated in a statement that it countered UPS' proposal with an offer to improve benefit levels in the multiemployer plans, in some cases to levels at or higher than those in the proposed UPS plan.
Other Teamster representatives did not return calls seeking information on the union proposals.
While UPS says it wants to create a uniform plan and increase benefits, it has other incentives to pull out of the multiemployer arrangement.
UPS said in a statement last week it no longer wishes to subsidize other companies' benefits. "Right now, UPS' contributions benefit several thousand Teamster retirees who have never even worked for UPS. We want UPS dollars to go to UPS people."
That kind of subsidy occurs when other employers in a multiemployer plan go out of business and withdraw from the plan, leaving the burden of providing benefits to retirees of bankrupt employers to companies remaining in the plans.
Fewer companies are contributing to the plans, while the number of retirees is increasing, UPS said.
"There are a number of issues at stake for the company and the union in a situation like this," said Bob Walter, a Buck Consultants Inc. principal in Secaucus, N.J.
Apart from concerns about subsidizing other retirees in multiemployer plans, UPS likely believes it could earn a greater investment return on contributions made to a pension plan it controls than to the multiemployer Teamster plans, he noted. In most cases, "multiemployer plans invest more conservatively than single-employer plans," he said. "As such, they have had lower rates of return."
The union's concerns are not only related to retaining investment control and authority over benefit levels, but an exit by UPS could spur other employers to leave the multiemployer plans, he suggested.
"It depends on the industry," he noted, explaining that some types of businesses, such as construction companies, are well-suited for multiemployer plans partly because the volume of work and income is unpredictable for those industries. Many of those employers aren't large enough to operate their own pension plans.
Large companies like UPS may decide they have the resources to take control of their pension plans, Mr. Walter said. "We could see efforts from employers to extricate themselves from these funds" if UPS is successful, he added.
Details on any losses the multiemployer plans would suffer if UPS does pull out were not available last week, and the Pension Benefit Guaranty Corp. said it would not comment.
Mr. Walter explained that the withdrawal liabilities were put in place-as part of a 1980 federal law-so that theoretically a plan would not be hurt if a large employer were to leave. Withdrawal liability penalties also were imposed to give employers participating in the plans an incentive to improve plan funding and try to restrain costly benefit increases. However, he added, if UPS' claims of subsidizing other retirees is true, its pullout could lead to a shortfall.
"Is it possible that it could put some plans out of business? I guess it's conceivable," he remarked. "There's a critical-mass issue here. If you start losing big employers, it's going to be tough to keep these plans running."
Also on the table is a UPS proposal to create a new company-administered health care program to replace the one currently administered by the union. The program would offer managed care options and would provide the same benefits to full- and part-time workers. UPS also wants to set up a company-administered health plan for retirees. Currently employees are covered under Teamsters-administered health plans.