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Teamsters Face Pension Meltdown

More than 200,000 retired Teamsters are now facing serious problems with their pensions. Central States Fund, a Teamsters pension plan founded by former union head Jimmy Hoffa, is only 60 percent funded and is now in “critical” status, as the WSJ reports. Despite efforts to make up the difference with big bets in the stock market, the fund is now so deep in the hole that it appears unlikely to earn enough returns to pull itself out:

“There is a reasonable possibility that this plan could run out of money in about a dozen years,” Central States Executive Director Thomas Nyhan said in an interview. […]

The pension plan pays about $2.8 billion in benefits a year but takes in only about $700 million in employer contributions. “You have to make up the rest with investment returns,” said Mr. Nyhan, which he thinks is unlikely over the long term.

These problems will sound familiar to anyone who has been following the travails of public pension plans in states like Illinois and California. Making matters worse, a number of companies are pulling their employees out of this plan and into other, better-financed Teamsters-run plans. This is good for the workers who manage to jump off this sinking ship, but it will make it even more difficult for the fund to remain solvent in the future. If that happens, retired union workers could take a Cyprus-like haircut as their benefits are slashed to the bone.

Workers in defined-benefit funds around the country (including many state-run plans) should take note. If the Central States Fund pensioners had been in defined-contribution plans, they would now be much better off.

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  • Jim Luebke

    We need to have a new approach in this country to “Free money” — cash payouts that are not supported by useful work done at market prices, e.g. pensions and entitlements.

    Instead, payouts of this sort of largesse need to be tailored directly to the ability of the money-giving sources to pay. (This will happen one way or another, as money that doesn’t exist can’t be paid.) Defined-contribution plans and entitlements whose total payouts match the volume of their tax base (and never a cent more!) are the future of the Blue model. They’re the only sustainable path.

    Anything else leads to crisis and collapse, as we’re seeing now.

  • Anthony

    “These problems will sound familiar to anyone who has been following the travails of public pension plans in states like Illinois and California.” Yes, and basic fiscal arithmetic suggests that the pension challenges ahead will require more than ad hoc responses to changing economic/political structure undergirding pension finances.

  • Richard Treitel

    Umm, if the same contributions had been invested in the same markets, the only difference would be that the pensioners would *know* they were worse off instead of being surprised.

    As Megan McArdle pointed out recently, there is no way in the world to assure yourself of an income thirty years in the future. I would add that there is also no sure way to know what you’ll want to buy thirty years hence, nor what it will cost.

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