Last Friday, the executive director of the Central States Pension Fund sent a letter to retirees and covered workers announcing that the fund will be broke in less than 10 years.
St. Louis area construction employers, who have drivers, contribute to the Central States Pension Fund.
The letter from fund director Thomas Nyhan followed the US Treasury Department’s rejection of a rescue proposal from the trustees of the pension plan.
John Moellering, a construction law expert at Lewis Rice LLC, said the Central States Pension Fund was one of the first, and certainly the largest pension fund to apply for a rescue plan under the Multi-Employer Pension Reform Act of 2014. Before that law, pension funds could not cut benefits to retirees. Under the law, distressed funds can file an application with the Treasury Department to cut or “suspend” benefits in order to keep the fund solvent. By any definition, the Central States Pension Fund is distressed.
Moellering said, “The Central States fund pays out $3.40 for every dollar that comes in. The net ouflow is about $2 billion a year.”
“It is in a death spiral,” he said.
In September, the fund’s trustees proposed to cut benefits to current retirees an average of 23 percent, although some retirees would see cuts of as much as 59 percent.
The law, Moellering said, “has a sliding scale on how much you can reduce pensions for different groups to make it equitable..”
If the Treasury Department had approved the plan, it would have gone retirees and workers for a vote. If they had voted it down, the Treasury Department could have imposed it anyway. Since the Treasury Department rejected the rescue plan, however, there will be not vote.
Moellering said that he was surprised that the Treasury Department turned down the proposal. There are few options left.
“Normally, the Pension Benefit Guarantee Corporation is a backstop for retirees who lose their pensions when their funds fold, but it doesn’t have the wherewithal to pay out on the underfunded Central States plans,” he said.
More than 400,000 retirees get pension checks from the Central States Pension fund.
“The fact that the federal government’s multiemployer pension insurance program, the Pension Benefit Guaranty Corporation (PBGC), is also running out of money means our participants may see their pension benefits ultimately reduced to virtually nothing when the Fund runs out of money,” Nyhan wrote to retirees.
“The whole multi-employer pension arena is very troubled right now,” Moellering said. “The model was fine when it started, with more people contributing than were collecting, but as industry has matured, it no longer works. You can only squeeze participating employers so much, especially when they are competing with numerous employers who don’t contribute to the fund,” he said.