Teamsters Find Pensions at Risk


Published: November 15, 2004


(Page 3 of 3)


These investments could be risky, but the industry argued that
losses, even big losses, in one year did not matter because a
pension fund was a long-term proposition; over time, the losses
would be recouped by even bigger gains. Buoyant markets reinforced
this thinking in the 1990's, even though by then unionized
trucking was in deep decline, and the Central States' ratio of active
workers to pensioners was shifting perilously.


Records for the Central States pension fund are not complete, but
they indicate that Morgan Stanley kept pace with industry trends,
shifting the fund into stocks, particularly international stocks.


By 1997, more than one-third of the pension fund's assets were
invested abroad, records show, far more than the norm for such
funds. Greenwich Associates surveyed union pension funds in 2003
and found that international equities made up less than 3 percent of
their total assets.


A spokesman for Morgan Stanley declined to comment on the Central
States investments, citing a policy of not discussing
relationships with past clients. He pointed out, however, that international
stocks did relatively well in the late 1990's.


Morgan Stanley was replaced as fiduciary by Goldman Sachs and J.
P. Morgan in 1999 and 2000. (Bankers Trust served as fiduciary very
briefly.) A spokesman for Goldman Sachs noted that his company
inherited many of Morgan Stanley's investments and added, "Over
the five years we have managed the fund, our performance has exceeded
the relevant benchmarks." A spokeswoman for J. P. Morgan cited a
policy of not discussing clients' business.


When the stock market crashed in 2000, the Central States pension
fund had big bets on technology and telecommunication stocks,
energy trading companies and foreign stocks. Some of these stocks became
nearly worthless. But the resulting carnage was not apparent to
many rank-and-file Teamsters until last winter, when plan officials
announced that benefits would have to be curtailed.


Meanwhile, drivers were making their retirement plans.


Tommy Burke, a U.P.S. driver in Fayetteville, N.C., had been
planning to retire in 2005, when he would turn 60, and go into the
restaurant business. But when the pension fund reduced benefit
accruals, it also began enforcing a rule that pensioners could not
re-enter the work force, under penalty of having their pensions
stopped. Mr. Burke, frustrated, began to research the pension fund
on his own, trying to learn just what had happened. In an annual
report for the plan, he was shocked to see a reference to a $77
million uncollectible loan.


"How in the world can you have an unsecured loan in the amount of
$77 million?" he asked.


When an official of the pension fund visited his union local hall
this year, Mr. Burke put that question to him, but the answer only
upset Mr. Burke more.


"He said it wasn't a loan at all," Mr. Burke recalled. "It was
shares of stock in a bank in Russia, and it went belly up." Mr.
Burke said he didn't understand why pension money had been used to
buy something so risky, if the Labor Department and federal court
officials were monitoring the pension fund.


The Labor Department does not generally regulate investment
strategy, however. It was watching for signs of self-dealing,
racketeering or other flagrant abuse. From that perspective, the
fund was progressing well.


Some Teamsters say more complete answers lie in the official
progress reports for the pension fund, maintained for the federal
courts as required by the consent decree. But those are secret.


The New York Times and the Teamsters for a Democratic Union, a reform
group within the union, have filed motions with the federal
district court in Chicago to make the documents public.


The International Brotherhood of Teamsters, which is legally
separate from the pension fund, commissioned independent
investment and actuarial analyses of the pension fund in November 2002.


But the study's findings have not been released to the membership.
Many rank-and-file Teamsters complain that their questions about
the pension fund have been met with bromides about unforeseeable
market forces, and about an unusual convergence of stock market losses
and low interest rates that is always described as "the perfect
storm."


They are unconvinced.


"If this was all about the stock market and this 'perfect storm,'
why weren't all these funds affected the same way?" asked Pete
Landon, a truck driver from Detroit who participates in the
pension fund.


The best clues may lie in the Western Conference of Teamsters
pension fund. In the 1980's, when the Central States plan was
shifting from real estate into stocks, the Western Conference
trustees, acting on actuarial projections of future pension
benefits, put together its conservative portfolio of high-quality
bonds and other fixed-income securities. The bonds were held until
they matured.


Such an investment portfolio requires little stock research or
trading and consequently generates little fee revenue for money
managers, but it has served the Western Conference of Teamsters
well. From 2000 to the end of 2002, when the Central States fund
lost $2.8 billion, the Western Conference fund gained $834
million.


"I think the most prudent, most basic pension funding theory would
be: You put aside assets today to most precisely meet your
obligations in the future," said Edward A. H. Siedle, a Florida
lawyer who specializes in pension fund audits. "You do not try to
beat the market. You do not try to maximize returns. But in this
country, the plan sponsor doesn't want to do that. The corporation
wants to put the minimum aside today, and invest it with maximum
efficiency. That's the trouble."





---
*Durango b301 #PE*