Re: What happens if the contract isn't ratified on 1/1/08 when the regs go into effec
Sometimes independent information really provides some insight to what is going on with this contract.
A Fund Farewell; Federal pension law gave one push, say some, for UPS and Teamsters to reach early agreement
Traffic World, October 15, 2007 Monday
BYLINE: MICHAEL FABEY
Few events in transportation these days truly reach the level of unique, but the tentative agreement between the Teamsters and UPS for company parcel workers appears to make that mark.
For starters, the tentative pact comes a year early, a first for an agreement of this magnitude between the global shipping giant and the union.
A decade ago, an impasse between the two resulted in a brutal strike that marred relations and cost the company dearly, in terms of customers and revenue.
Then there's the acknowledged key sticking and bargaining point for the two sides - a troubled pension fund.
In 1997, the Teamsters rallied around a cry to keep pensions untouched and intact. This year, negotiators stitched an agreement that allows UPS to pull out of Central States Pension Plan, the biggest shared by the company and the union, for a lump-sum payment of $6.1 billion.
"We will sever once and for all our ties to Central States in terms of financial obligations," said UPS spokesman Norman Black.
"I've not seen one like this before," said Jeffrey Sparling, director of advice for multiemployer pension funds for SEI, a financial services firm which manages $199 billion in assets for 490 clients, including multiemployer plans.
Usually, companies pull out and pay withdrawal fees over a longer haul. "They're shoring up the program in a short time," Sparling said. "That's pretty big."
The key event in the past decade that changed the calculation may have been the Pension Protection Act of 2006. Before that law, a troubled pension fund such as Central States could simply muddle along each year, possibly jeopardizing workers' retirement nest eggs.
The pension plan itself was well funded in 2000. But, like many other funds, Central States took a major hit with the stock market divee and other bumps through the early part of the decade.
In 2005, the last official year for which the data is officially available, the fund reported assets of $18.7 billion and liabilities of $39.6 billion. Fund officials this summer reported assets had grown to about $21.4 billion, still leaving the plan woefully underfunded.
Under the PPA, plans on Jan. 1, 2008 as markedly underfunded as Central States would be required to come up with a plan to become more balanced.
If the companies and unions cannot agree to a mutually acceptable plan, then the fund actuary will formulate one, potentially triggering cuts in benefits. That may have been pushed the Teamsters and UPS together on a pension issue that once had divided them.
"It will go to default to the actuary, and it's cut, cut, cut the benefits," Sparling said.
But any cutting wouldn't start on Jan. 1. There is roughly a three-month window for the remediation plans. Some union members say the union leadership has scared the members into thinking the contract must be quickly negotiated and ratified to meet the January deadline.
"They can spin the worst-case scenario because no one wants to see the fund cut to nothing," said Sparling.
Union officials said they are under executive order not to discuss the accord now.
"This will ensure the integrity of the pension," Black said. "UPS will shore up the Central States fund."
But many industry observers, including investment analysts, believe the company sees the withdrawal payment as an investment. The company will have greater control of a fund jointly managed by UPS and the Teamsters.
"Over time, this will reduce pension expense for this group of people," Black said. "It will be less costly."
Because both sides and Central States itself are in uncharted territory, said Sparling, it's unclear what the ramifications could be if the tentative agreement is not ratified by Jan. 1.
The Teamsters union is managing the ratification vote and the company expects a final tabulation before Christmas.
The important thing, Sparling said, is to save the fund itself. "These are very valuable funds," he said. "They're better than 401ks."
Edward Wytkind, president of the Transportation Trades Department of the AFL-CIO, said he has no preference between a multiemployer or single company fund. "Both models exist. We've been successful in both. The real issue is to have stable defined benefit plans."
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