Teamsters Pension Crisis Hints at Deeper Problems for Retirement Funds
Friday, 09 Oct 2015 03:16 PM
Pension funds are facing a crisis that is only going to get worse as their investment gains have trouble keeping up with the growing costs of benefits, says David Tawil, president and founder of hedge fund Maglan Capital.
Retired workers this week were reminded of that debacle as a Teamsters pension fund told its 400,000 members that it filed to reorganize to avoid a total collapse.
The Central States Pension Fund pays out $3.46 in benefits to retirees for every dollar received in employer contributions, according to the New York Times, leading to near-certain insolvency.
“No one foresaw that the work force would diminish and have to support an ever-growing number of pensioners who frankly are living longer lives,” Tawil said in an interview. “At the same time, pension funds didn’t expect that interest rates would stay at historic lows, causing difficulty in achieving target returns.”
The Federal Reserve cut rates to near zero percent in 2008, when the U.S. economy declined the most in 80 years. Fed Chair Janet Yellen last month said she expected the central bank to hike rates this year for the first time since 2006 as the economy continued to grow.
Thomas Nyhan, the executive director of the Central States pension, told the NY Times that the fund was projected to run out of money in 10 to 15 years.
Its difficulties mirror bigger problems facing the Pension Benefit Guaranty Corp., the government agency that bails out pension plans, Tawil said.
“The next downturn, the PBGC runs the risk of not having any assets left,” he said. “Nothing is being done to fix it.”
The Teamster’s Central States fund is a multiemployer plan, covering workers from different companies and industries.
In recent years, some multiemployer plans ran into severe trouble as more and more participating companies went bankrupt, leaving growing numbers of “orphaned” workers and retirees for the surviving companies in the pool to cover, according to the NY Times.
“There isn’t a simple way to deal with this issues,” said Tawil, whose New York-based fund oversees $80 million. “It may be that courts will have to get involved in shaping the law on funds facing insolvency.”
Retired workers this week were reminded of that debacle as a Teamsters pension fund told its 400,000 members that it filed to reorganize to avoid a total collapse.
The Central States Pension Fund pays out $3.46 in benefits to retirees for every dollar received in employer contributions, according to the New York Times, leading to near-certain insolvency.
“No one foresaw that the work force would diminish and have to support an ever-growing number of pensioners who frankly are living longer lives,” Tawil said in an interview. “At the same time, pension funds didn’t expect that interest rates would stay at historic lows, causing difficulty in achieving target returns.”
The Federal Reserve cut rates to near zero percent in 2008, when the U.S. economy declined the most in 80 years. Fed Chair Janet Yellen last month said she expected the central bank to hike rates this year for the first time since 2006 as the economy continued to grow.
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Thomas Nyhan, the executive director of the Central States pension, told the NY Times that the fund was projected to run out of money in 10 to 15 years.
Its difficulties mirror bigger problems facing the Pension Benefit Guaranty Corp., the government agency that bails out pension plans, Tawil said.
“The next downturn, the PBGC runs the risk of not having any assets left,” he said. “Nothing is being done to fix it.”
The Teamster’s Central States fund is a multiemployer plan, covering workers from different companies and industries.
In recent years, some multiemployer plans ran into severe trouble as more and more participating companies went bankrupt, leaving growing numbers of “orphaned” workers and retirees for the surviving companies in the pool to cover, according to the NY Times.
“There isn’t a simple way to deal with this issues,” said Tawil, whose New York-based fund oversees $80 million. “It may be that courts will have to get involved in shaping the law on funds facing insolvency.”
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- Central States Pension Fund May Shortchange 300K Teamsters
- Detroit Bankruptcy Plan Bolstered by City's Working Class, Retirees
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