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ATLANTA-The biggest winners of a tentative settlement of the International Brotherhood of Teamsters' strike against United Parcel Service of America Inc. may be the nation's multiemployer pension plans and the companies that contribute to those plans.
After going toe to toe against the Teamsters, Atlanta-based UPS last week backed off from its demand to withdraw from the 31 multiemployer pension plans to which it contributes (BI, Aug. 18; Aug. 11).
Dropping the demand, said UPS Chairman James P. Kelly, was Atlanta-based UPS' biggest concession.
With great fanfare, UPS had said it wanted to leave the multiemployer plans, pay an estimated $700 million in withdrawal liability charges to underfunded plans and establish its own pension program.
Union negotiators called the UPS demand to leave the multiemployer plans a deal breaker. Teamster officials said it was UPS that approached them early last week and suggested that the company was willing to drop the demand to leave the plans.
Had UPS prevailed in its demand to leave the plans, it would have delivered a devastating financial blow to some of the Teamster multiemployer plans to which UPS contributes. In all, UPS contributes more than $1 billion a year to the plans, and those funds represent roughly 15% to 18% of all contributions to the plans.
Withdrawing from the multiemployer plans "clearly would have had a long-term serious impact on the plans," said Bob Walter, a principal and benefit consultant at Buck Consultants Inc. in Secaucus, N.J.
If UPS had pulled out, the contribution base of some of the multiemployer plans would have taken a big hit. And that would have put pressure on plan trustees to increase contributions on the remaining employers in those plans. With contributions rising and with UPS as an example, more employers likely would have considered pulling out.
"Unions would have faced a lot more pressure from employers to get out of the plans," said Bill Ecklund, an attorney who represents multiemployer plans and also is president of the law firm of Felhaber, Larson, Fenlon & Vogt in Minneapolis.
"This could have opened the floodgates for other employers" to try to withdraw, concurred Tom Brand, a principal in the Chicago office of William M. Mercer Inc.
And that could have started what some benefit experts call a "death spiral" for the plans, in which the withdrawal of one employer triggers the withdrawal of more and more employers from the plan until there remains an insufficient number to support the plan.
The fear of such a scenario developing explains why the Teamsters labeled the multiemployer plan proposal a deal breaker and would not budge from that position.
"The possibility of long-term serious damage to the plans was something the Teamsters could not tolerate. I'm not at all surprised that the Teamsters stuck to their position given its absolute importance," Buck's Mr. Walter said.
With UPS unsuccessful in its attempt to get out, the threat to the plans' contribution base is eased.
"That result is good for multiemployer plans and the employers who contribute to those plans," said Robert Krinsky, chairman of The Segal Co., a New York-based benefit consultant.
While UPS' capitulation on the pension issue eases threats to the destabilization of the Teamsters' plans and perhaps other multiemployer pension plans, staying in the plans will mean higher pension costs for the package delivery giant, though by how much the company isn't specifying.
As part of the settlement, retirement benefits provided by the multiemployer plans to UPS participants will be rising sharply.
For example, under the Teamsters' largest fund-the Rosemont, Ill.-based Central States, Southeast and Southwest Areas Pension Fund-a UPS worker will be able to retire after 30 years of service with a monthly benefit of $3,000, a 50% increase compared with the current monthly benefit.
The tentative pact does not call, though, for any substantive health care plan changes, a Teamsters' spokesman said.
If the settlement eases any immediate destabilization threat to multiemployer plans, it does not address long-term problems facing the plans.
The number of employees covered by multiemployer plans has fallen sharply, while the proportion of retirees has increased substantially.
In 1993, the last year for which information is available, the number of employees covered by the nation's roughly 2,000 multiemployer pension plans fell to 4.5 million, down from 7.1 million in 1975, according to the Department of Labor. Total enrollment in the plans, though, remained fairly steady during the same period, declining to 8.1 million from 8.5 million, an indication of how the proportion of retirees has increased (BI, Aug. 18).
That sharp fall in the number of active employees covered by the plans is a reflection of the decline in the percentage of workers enrolled in unions, which now is about 14% of the workforce, down from about 20% in 1983.
The trucking industry has also seen a change in its demographics. Deregulation of the industry has led to the bankruptcy of many large carriers that had organized workforces, and the startup of smaller companies that typically are non-union.
The result of these trends is that a smaller number of employers will have to make contributions to multiemployer plans for a growing number of retirees. And that development-especially if the runup in the stock market ends-bodes for higher employer contributions to the plans.