REJECTED! BAD ACCOUNTING, BAD MATH AND BAD WRITING DOOM THE CENTRAL STATES RESCUE PLAN
On Friday, May 6, 2016 the Department of the Treasury rejected the Rescue Plan filed by the Central States Pension Fund on September 25, 2015.
The Special Master’s reasons for doing so can be boiled down to a few basic problems with the Plan:
1. The Plan did not have a reasonable chance of success. The Central States Rescue Plan employed a number of flawed assumptions to support its conclusion that the Plan would rescue the Fund from insolvency:
A. The Fund estimated the annual rate of return on its investments would be 7.5%. The Special Master flatly rejected this assumption, finding that it did not take the current status of the economy into account and that it was “significantly optimistic”.
B. In order to be able to project zero benefit payments for new entrants on its 20 year balance sheet, the Fund also used an unreasonable assumption that the average age of new employees entering the Fund would be 32 instead of using the same demographic age mix that the Fund uses for other actuarial purposes.
2. The Rescue Plan did not fairly share the pain. The Special Master also found that the Central States Rescue Plan failed to include an “equally distributed suspension of benefits” because it reduced the benefits for UPS retirees more substantially than it reduced the benefits non-UPS retirees and failed to credit UPS retirees for the entirety of their service.
3. The Rescue Plan failed English 101. The Special Master found that Central States’ Notices were confusing because they were not written to be understood by an average plan participant as required by law.
The rejection of its Rescue Plan was bad news for Central States because it will force the insolvency-bound Fund back to the drawing board to survive the next decade. It was temporary good news for the Teamsters, although this good news will be short lived – absent a taxpayer bailout or a second Rescue Plan, at some point in the next decade or so the Fund will be insolvent and the retirees will face even more substantial benefit cuts. Finally, the rejection was bad news for employers because it traps them in spiral of steeply increasing withdrawal liability and bad news for the taxpayers, who will ultimately foot the bill. Although the Central States Rescue Plan was imperfect at best, in this case the Treasury Department basically refused to permit the passengers on a sinking ship to get into a lifeboat because it looked too creaky and the seat cushions were the wrong color.
The Teamsters and Central States responded to the rejection by urging their members to write Congress and demand a federal bailout.
A copy of the Treasury Department’s findings can be found here.