CQD: The failing Central States Pension Plan and what the City is going to do about it

Last telegraph out from Titanic

“CQD. CQD.” - the distress code sent out by the telegraph operator aboard the RMS Titanic on April 14-15, 1912 which means “all stations: distress” (it was only after the sinking of Titanic that SOS became the universal Morse code of distress)

On April 14, 1912 the RMS Titanic collided with an iceberg and within a few short hours the unthinkable occurred: the reportedly unsinkable boat lay in pieces at the bottom of the Atlantic. Central States Pension Fund, one of the largest pension plans of its kind with over 400,000 members nationwide, including five of our own public works employees, like the Titanic has hit something massive and is rapidly taking on water. In a comparitively few short years the thing will be “sunk”. Currently it is $28 billion dollars insolvent and Congress, unlike in 2008 when they bailed out the auto industry, is planning on doing nothing to stop the catastrophe. With nothing to be done the best possible thing for all parties involved is to make it to a lifeboat before the thing goes under completely. Which is exactly what the City of Chetek is currently doing.

The letter I received

A few weeks after taking office last year I received a letter from Central States informing me in dry legal syntax of the status of the fund and of the unwillingness of Congress to do anything about it. I didn't realize it at the time but essentially it was the equivalent of the CQD distress signal that was sent out repeatedly from Titanic on the night and early morning of April 14-15, 1912. But unlike in that instance there was no Carpathia sixty miles away to race to the rescue. Peel away the legalese and it pretty much reads how Titanic's last telegraph read: 'WE HAVE STRUCK ICEBERG SINKING FAST COME TO OUR ASSISTANCE.' This past April we received the annual assessment of the fund that read very much the same way the previous letter read only to add that their “rescue plan” was rejected by the Treasury Department. Thus we're back to square one and the sea water continues to pour in.

This is not a new problem. This is not a fiasco you can blame on Trump or Obama or even Bush. If only it were as simple as that. This is about a menagerie of things that, yes, include elected officials who appear to lack political courage to do anything and federal judges who seem, at best, indifferent. It has to do with the change in the industry as well as the demographics of the baby boomers who are now exiting the labor force in droves. Back in 1980, for every 5 guys coming into the work force, one was retiring. These days it's totally reversed: for every 5 guys retiring only one guy is coming to work. Even a rube like me understands math like that.

Central States is the pension fund
of the Teamsters

Central States was created to benefit the guys it served who were involved in the transportation and warehousing industries (how our public works' guys became a part of the Teamsters is maybe a question for local historians John Banks or Bill Waite because no one I know seems to have the answer for that.) Which was great until the truck industry was deregulated back in the 1980s. According to one on-line source I read back in the 70s more than six in 10 “for hire” truckers belonged to a union. By 1996 only two in 10 were union members. Again, it's simple math.

Deregulation and competition from nonunion businesses accelerated the declining health of the fund. Throw in union mismanagement, the Great Recession of 2008 and some other series of unfortunate events and we are where we are today. A year ago, Lee Schafer, a columnist for the Star Tribune, wrote an excellent article about Central States wherein he comments,

This fund is going to fail because of an upheaval put in motion more than 35 years ago in the principal industry that employed its participants, trucking and warehousing. That makes this coming crash a little like a truck careening into the gorge after the driver repeatedly blew past “Danger! Bridge out ahead” signs — with the first one maybe 1,000 miles back. (Doomed to Fail)

At the present time, the City takes $155 a week out of the paycheck of our union members (Mike, Joe, Rod, Brandon and Aaron) and sends it off to Central States. Former employee Tim Berning retired in May and at June's council meeting, Waste Water Treatment Operator Mike McGinnis announced he would be retiring in September. Both those guys will receive their pension benefits until the fund is defunct eight years from now. If he wanted to, Joe could retire today and begin receiving his pension check. But Rod, Brandon and Aaron are way too young to do so and yet by law we are required to continue to deduct $155 from their weekly pay check and send it off to Central States. Using Central States' own estimate by the time they are of retirement age that fund will no longer exist and these guys will never see a penny of what is owed them. Ever.

Charlie P. Stevens

So, if our guys will not benefit from that fund why not just quit sending the money in? Why not just jump out of the sinking ship before being sucked under by the undertow? Because we can't. If we were to do that the Teamsters would legally have the right to take us to court and would probably win. The only way out is to cough up and pay our share of the liability. The way Congress wrote the rules a business or (in our case) a municipality can't just “walk” away – or, to continue the metaphor – row away. We have to pay our fair share of the estimated $28 billion dollars of liability. Case in point, in 1997 UPS read the same tea leaves we're looking at now and were prepared to exit stage right. At that time their portion of the liability was approximately $600 million. They reconsidered and continued with Central States for ten more years

We have to eat our piece
of the pie...even if it smells
like you know what

by which time their piece of the pie of liability had grown to – wait for it - $6.1 billion dollars. In 2007 they paid up and took 60% of the entire Teamsters membership with them. An international corporation like United Parcel Service can do some finagling and come up with that kind of cash. We, obviously, cannot. Which is why we retained the services of Charlie P. Stevens, a lawyer with Michael Best & Friedrich LLP out of Milwaukee, who specializes in pension law, to get us out of this disaster as expeditiously as possible.

We began our conversation with Charlie by phone back in April and immediately got an education on just how dire things really are. One of the things I really appreciate about Charlie is that he's plain spoken and is pretty good at breaking down a very complicated legal matter into plain English. Here's a quote for you: with regards to Central States, “Everything they do is diabolical.” Well, that makes you sit up in your chair. In May we invited him to come to our monthly council meeting and get the aldermen up to speed on the situation. We also made sure that all the present employees of the city's public works department as well as those who are now retired from it were aware that he was in town. All of them showed and heard his grim report. When he was done the atmosphere in the council chambers was tense to the say the least.

“Hubris” is a word that we derive from the Greek language describing excessive pride or defiance of the gods that ultimately leads to nemesis. The accepted moral lesson of what happened on April 15, 1912 is that it wasn't an iceberg that sunk Titanic. It was hubris, overweening pride in man's creation of a supposedly “unsinkable” ship that was speeding recklessly through an ice field. And real people died because of it. What Charlie described in council chambers in May is yet another display of hubris. But where Titanic was a tragic yet avoidable accident, the current status of Central States is, frankly, a robbery in slow motion committed by unscrupulous individuals and real people with a Chetek zip code will be affected.

If the ship cannot be righted and the government will do nothing to intervene and prevent the inevitable calamity the only option left to us is to get out as soon as possible. Every day we stay in our piece of the liability pie grows larger. If we don't abandon ship, if we choose to join the band playing away on the deck of the sinking Titanic, when it finally does goes under not only will we owe more but all the money we have already sent in will have been wasted. We might as well have taken that $3,100 a month and literally sent it down the toilet. So, we're getting out – this week.

They were heroic and went down with the ship.
We cannot allow that to happen.

By Charlie's rough estimate, we need to come up with $1 million dollars that we can either pay in installments or in one lump sum. The benefit of paying on the installment plan is obvious – it eases the pain in small monthly doses over the next twenty years. However, the risk in that is that in the meantime Congress will come up with some kind rule that leaves us on the hook to Central States as long as we owe them anything. So better to pay them off in one lump sum and be done with them rather than risk future liability. That's what were going to do. Where are we going to come up with that kind of cash? Well, potentially we have half that amount on hand already between an outlay account for Knapp Haven that's never been touched and the $100K that Atrium still owes us and promises is “in the mail.” We'd have to take out a loan for the rest.

And what about our guys? Are they left floundering in the drink? No. The city will continue to make contributions but through some kind of 457 plan. It would be their money in their account and ultimately would be of more value than just sending money off to Central States where more than half of every benefit dollar paid out goes to retirees whose employers withdrew without ever paying their piece of the pie. What's more, we're not asking the guys whether or not we can do this. We're doing it because we believe its in theirs and the city's best interest but we're not asking for their permission. We're just informing them. If the union threatens to cut them off, well, they can rightly argue according to the rules the union lives by that it wasn't their fault and therefore they are entitled to everything they're due (until, of course, the money runs out.)

It's totally unfair and unjust but we have been reasonably informed that there is just no way to fight this. We would be tilting at proverbial windmills and end up right back where we started except with additional legal costs for our efforts. What were we going to do with the “Knapp” money? We were holding on to it until everything with the sale was totally wrapped up, more specifically with the $100,000 in receivables that Atrium still owes us in our hands. That money could have been reallocated for sidewalk replacement, park improvements, equipment upgrades and the like. It's a darn shame but it appears it wasn't to be. It breaks the heart but to do nothing would be irresponsible and we still have to do the right thing and get everyone to a life boat while we still have time.