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Central States Trustees Fact Sheet



Central States Trustees Fact Sheet

The Facts About the Central States Funds Crisis

December 10, 2003

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Since the Central States Funds announced benefit modifications, a flood of misinformation has been unleashed by those attempting to use the crisis to advance their own political agenda. The information below sets the record straight.

Misconception: The changes in pension and health benefits introduced by Central States Fund are not needed, and in fact the Fund should actually be improving health and pension benefits.

Fact: The consequences of not implementing the changes or of actually increasing benefits would be devastating to active participants and retirees covered by the Funds.

The choice before the Trustees was to do nothing and see the Central States pension fund collapse or make the changes to protect your pension security. The funding crisis simply could not be ignored. If the Trustees had done nothing, the Government would be forced to take over the Funds and implement changes that would be far more drastic and far more detrimental than those which have been implemented. One only needs to see what is happening to steel workers and airline workers today as a result of government takeover.

Furthermore, the changes were implemented pursuant to a Court order issued by Judge Moran, the Federal Judge who oversees the Funds. While the details of the benefit modifications were hammered out by the Funds’ Trustees, the Union Trustees insisted that the changes should not be put into effect without the employers also stepping up to the plate and agreeing to pay their fair share by agreeing to make more contributions to the Funds. The IBT is continuing to pressure the employers on this point.

Central States Pension and Health and Welfare Funds are run for the benefit of the participants in those Funds—active and retired Teamsters and their families. Unlike company sponsored plans, which are run by corporate executives, the Central States Funds are administered by a board of Trustees half of whom are Teamsters appointed by the Local Unions with members in the Fund. The idea is that employees will have at least an equal voice in determining how the plans are run. An equal voice does not mean that the Union Trustees were free to ignore the current economic crisis or take the kind of irresponsible steps some are claiming they should have taken.

The responsibility of the Fund Trustees—on both the employer and employee side—is to represent the interests of all fund participants, i.e., the employees and retirees who depend on the Funds for their health care and their retirement benefits. In fact, it would be illegal for the Trustees to take any action that was not taken in the interest of the security of the Fund or the benefits of the participants.

One of the most important responsibilities of Fund Trustees is making sure the Funds are in compliance with the laws governing employee benefit funds. On November 17th, Judge Moran issued an order directing that Trustees take the action to save the Funds, and protect the interests of all participants as required by law. If he had not ordered these actions, a government takeover of the Pension Fund would have been inevitable, as would have been far more drastic changes in order to preserve the best health benefits for the most number of people at the lowest possible cost. In the end, the Federal Judge monitoring the Funds ordered the benefit cuts. With no input from the Trustees, the Judge could have ordered more drastic cuts. As it stands now, the Judge is waiting for the Fund employers to step up to the plate with increased contributions.

Blaming the Teamsters union for these cuts is a misrepresentation of the facts. Central States is an independent trust fund and is operated under the supervision of a federal court in Chicago. All plan assets are held and have been invested by independent court-appointed investment professionals for almost 20 years. The Teamsters Union has no formal role in either investment decisions or in administering the plan.

Claiming that the modifications are unnecessary is completely irresponsible. To say this, you have to ignore the worldwide economic crisis and the unprecedented escalation in health care costs. You also have to ignore the fact that every pension Fund in the United States is under similar pressure, and that every conflict between workers and employers in today’s economy centers around rapidly rising health care costs. You also have to ignore the fact that there are more retirees than active participants in the Central States Funds, and that retirees are retiring earlier and living longer and drawing benefits longer than anyone ever anticipated when the Funds were originally structured. Finally, you have to ignore that as major Fund employers go out of business there are no longer active participants contributing into the Fund for benefits collected by former employees.

Making tough choices to protect members and their families is never easy. Everyone would be happier if the changes weren’t required or, better yet, if benefits could be improved. The simple fact of the matter is that these were not options, and no amount of irresponsible rhetoric from political opportunists can change this.

Misconception: Fund Trustees are hiding behind the Court order and, in fact, management and IBT Trustees secretly negotiated the cuts without regard for their impact on Teamster participants.

Fact:The Union Trustees did everything they could to make sure the impact of cuts on retired and active participants was minimized. The suggestions that they did this in secret or are trying to “hide” behind a Court order are just plain nonsense.

First, there was no secrecy at all in the process. The Fund Trustees communicated the crisis and the need for benefit modifications in multiple publications over the course of the last six months. At the same time, the Fund visited with every government agency from the IRS to the Department of Labor in the last six months to discuss what measures were needed to forestall a pension Fund deficiency and to deal with accelerating health care costs.

Second, it is the fiduciary responsibility of Fund Trustees to act exclusively on behalf of the participants. So while the employers and the Teamsters elect their own Trustees, once those Trustees are elected they are to act in the interest of the participants, not the employers or the union. The resources of the Funds—the contributions made by employers to the Funds—are negotiated in collective bargaining agreements between the Union and the Employers. The Fund Trustees have no control over the resources of the Fund. They are required to provide benefits to the members in line with Federal Law, existing collective bargaining agreements and existing Fund resources. That means they must provide benefits within these parameters while maintaining the viability of the Funds.

As part of their responsibility to protect the long-term viability of the Funds, several months ago the Trustees determined that changes would be needed and communicated that to the participants. Union and Employer Trustees debated the form these changes would take, and the Union Trustees also insisted that there must be increases in employer contributions. After several months of discussion, there was still no agreement on a package of benefit modifications and increased employer contributions and the Trustees were deadlocked.

The deadlock then went to Federal Judge Moran to resolve. Judge Moran ordered the benefit cuts as necessary and “admonished the Trustees [about] . . .the pressing need for substantial additional employer contributions to the Pension Fund.” At the current time, the Teamsters Union is working to negotiate increased employer contributions to the Funds in order to further secure their future viability and the security of all participants. Federal Judge Moran has expressed his concern that Fund employers do the right thing and step up to the plate with increased contributions.

How these facts can be twisted to suggest that the Trustees are hiding behind Judge Moran defies rational explanation.

For months, the Trustees have taken extraordinary steps to keep participants informed about the serious problems facing the Funds, and their limited options for addressing them.

After they were implemented, the ordered benefit changes were reviewed at meetings with Local Union officers. All affected locals were encouraged to send representatives so that every local received the same information at the same time. This was done to ensure that information and questions on the changes could be addressed first-hand, and thus, lessen the chance for misinformation and misunderstandings that often arises from second-hand communications. For the same reason, local officers were asked to let the Fund’s personnel do their jobs by communicating directly with members about benefit changes.

At the same time as the Fund staff and Trustees were meeting with Local Union officials, information was posted on the Fund website as well as on the Teamsters web site. The Fund has also mailed to every Teamster participant a full analysis of the nature of the changes and their impact on that person individually.

Fund Trustees want every member to understand the impact of the changes on his/her own benefits. Fund field staff will be visiting every Local Union that makes a request in order to further explain changes to the members. In order to avoid the potential for rumors and other misinformation about these complicated issues, Fund Trustees believe it’s best for participants to get their information and questions answered directly by those best trained to address their concerns.

Misconception:Cuts could have been avoided if the Union had negotiated higher employer contributions in the last contract.

Fact: This ignores the fact that the Union negotiated employer contribution increases in the UPS and Freight contracts nearly twice what they were in previous agreements.

An unforeseen acceleration in health care costs, the bankruptcies of CF and other employers, and a continued decline in investment returns following the Enron, Tyco and other scandals throughout 2002 along with historically low interest rates subsequently undermined the Fund’s ability to provide benefit security without those changes.

The truth of the matter is that the pension and health care crisis is affecting every sector of the American economy, thousands of employers, and tens of millions of workers. Although some would like members to think that the crisis at Central States is unique, and therefore caused by sinister forces, the fact is the same crisis is wreaking havoc with the pensions and health care of workers throughout the nation and, indeed, the world.

When the Teamsters Union announced that it had negotiated the wealthy contracts at UPS and in Freight the announcements were accurate. The value of the wage and benefit package negotiated in those cases was substantially larger than those negotiated in prior contracts.

Suggestions that somehow this was all part of a plan to change pension and health and welfare benefits down the road are irresponsible and untrue. No one anticipated a continued decline in the stock market, annual double-digit health care cost increases, or the lowest interest rates in a generation. Even extremely rich contracts were not sufficient in this climate to stave off problems at Central States.

The challenges facing the CSF are of such a degree that even if they could have been anticipated several years ago when the major contracts were negotiated it would have been unrealistic to expect that employer contributions alone could solve the problems without also implementing changes on the benefit side or cutting wages. As we now know, nearly every pension fund in the nation is in crisis and the government body that insures pension funds, the PBGC, is itself on the verge of bankruptcy.

The reality is that the pension crisis is so severe, that even new increased employer contributions would not be enough to fully reverse the changes. Indeed, putting the entire burden on increased employer contributions would lead to the bankruptcy of dozens of Teamster employers and the loss of thousands of Teamster jobs. And this would lead to lower overall contributions, which would end up canceling out the effect of the increased employer contributions. Even the current effort to increase employer contributions does not envision increases of the magnitude that would fully solve the problems or eliminate the need for some reduced benefits, because to do so could put many employers out of business and end up hurting participants.

Fraternally,

Fred GegareJerry YoungerGeorge J. WestleyCharles A. WhobreyPhillip E. Young

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