UPS, and roughly 270,000 retired truck drivers, construction workers, and other service workers can breathe a collective sigh of relief... for now. As we previously reported, the Central States Pension Fund had submitted a plan to Treasury that if approved would have cut member benefits, and triggered UPS to take an estimated $3.8 billion charge.
As the WSJ reports, Kenneth Feinberg (who was appointed by the Treasury to review all such applications) rejected the plan presented by the CSPF. Feinberg cited a few reasons for his decision, one being that it imposed cuts in a disproportionate manner, another was that the notifications sent to participants were too technical to be understood, but namely Feinberg didn't agree with the assumption that the fund would achieve 7.5% yearly investment returns going forward. Those returns "were too optimistic and unreasonable" Feinberg said.
"You get to breathe again, you get to exhale. Our life was on hold." said Bill Orms, a 69 year-old retired truck driver from Akron, Ohio who would have seen his $2,400 a month benefit cut in half had the proposal been accepted.
Absent an injection of funds or benefit cuts, the fund which pays out $2.8 billion in benefits a year will be insolvent within ten years according to Thomas Nyhan, the plan's executive director. Nyhan added that he was "disappointed" by the Treasury's decision. According to the WSJ, the fund currently has $16.8 billion in assets against $35 billion in liabilities, and has roughly one active worker contributing to the fund for every four retirees that draw from it.
So we're now back to where we started. The Central States Pension Fund will by its own estimates be insolvent within ten years, and the government safety net, the Pension Benefit Guaranty Corp cannot be counted on to pick up the benefits because it too is well on its way to insolvency.
If the Treasury won't allow any pension cuts, and the government created safety net won't be there to keep the benefits flowing, how will the cash continue to flow to members? With the precedent now set by the Treasury that no cuts will be allowed, the answer will likely come in the form of a massive bailout.