The U.S. Treasury Department on Friday rejected a plan that would have slashed pensions promised to 270,000 Teamsters, including about 15,000 in Wisconsin.
The decision deals a victory to retired truck drivers, dock workers and others who battled the cuts, which in many cases would have sliced promised pensions by more than 50%.
I do wonder why the Treasury Department is deciding these things and not a court, but that’s not relevant for the moment.
Here’s the deal… the Central States Pension Fund provides pensions for about 400,000 retirees. It is going broke for two reasons. First, changes in the trucking industry means that there fewer working union truckers. There are five retirees for every working trucker putting money into the fund right now. But that wouldn’t be a problem if it weren’t for the second reason… the fund has been woefully mismanaged for decades.
The whole point of a pension fund is that workers pay into it during their working years so that there is money in it when they retire. But the Central States Pension Fund was horribly underfunded and the investments were mismanaged. Pension funds can get away with being underfunded as long as there are enough current workers pumping money into it to pay current benefits, but as we have seen with funds like this all over the nation, it falls apart as soon as retirees start outnumbering workers.
So primarily due to the mismanagement of the Central States Pension Fund, it is going broke.
Up until 2014, there wasn’t anything that the fund could really do about it. They were forbidden by law from reducing expenditures and they can only raise fees from current workers so much. They were simply managing a dying fund until it fully expired. But in 2014, Congress came to the rescue by passing legislation that gave the fund managers more control over expenditures. The law allowed them to cut benefits to extend the life of the fund. So they did just that.
The math is really quite simple. Central States Pension Fund can continue to pay full benefits until the money runs out, at which time the all benefits will simply stop completely, or the Fund can reduce benefits to allow them to pay reduced benefits for a much longer period of time. They opted for the second choice, but the ruling yesterday is making them take the first choice.
As I said, there’s no way for this to end well. Due to decades of bad decisions by faceless fund managers and union leaders, the Central States Pension Fund will go broke. It will either pay out full benefits and go broke in less than 10 years, or they may be able to extend the funds a few more years by reducing benefits if the government allows them to. Either way, it will go broke. And then either these retirees will be left out in the cold, or the taxpayers will be footing the bill to rescue the Pension Fund like some people want. And if the taxpayers rescue the Central States Pension Fund, you can bet that the taxpayers will be asked to bail out the hundreds of other pension funds that are facing the same fate.
While the retirees in the story are happy now, and we can all understand and empathize with their happiness, it is an empty victory. The problem is still there and the solutions are still not good.