A few weeks ago, my smiling face appeared on the front page of The Chetek Alert as Carl was running a follow-up article on the Central States Pension plan. He sent me an email and I responded with an email forgetting that I had not yet informed the guys about the latest development with our negotiations with Central States. It was unfair to them to read all about a matter that they have such a vested interest in at the same time everyone else was. For that, I'm sorry and going forward will try to do better at keeping them in the loop.
“So what's the latest on the
Central States' matter?”
When I ran for mayor, I ran on no issue whatsoever. I was just
willing to serve if the citizens were willing to have me. Never did I
anticipate that during my first year in office I would be involved in
a financial scramble for a lifeboat. Central States, the pension plan
of our public works employees, is going under. By all accounts they
are presently $28 billion insolvent (that's billion with a
“b”). Some of it has to do with factors that are out of their
control. In 1980, for every five guys coming to work, one guy was
retiring. Nearly forty years later, that figure is exactly reversed:
for every five guys retiring, only one is signing on. Add in the fact
that in the 1970s the federal government deregulated the trucking
industry (the primary members of the Teamsters Union) and that
because of the passage by the Wisconsin legislature of Act 10 in 2011
that removes the necessity of joining a union in various industries,
now it's a matter of simple math: there are just not enough members
to pay all the promised benefits. By Central States' own estimate
they will be out of money less than 10 years from now. The word on
the street, however, is that they will be broke long before that.
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| The Titanic sinking we can blame on human error. Central States' sinking more on human greed, as if they aimed right at the iceberg. |
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| He even speaks English and not lawyer-ese |
At
the end of June, we authorized Charlie Stevens of Michael Best out of
Milwaukee, our lawyer who we have been consulting with, to draft a
letter informing Central States that we were done sending money down
the drain. By congressional rule that decision means that the city
will have to pay our fair share of the liability before we row away
from a proverbial sinking Titanic.
At the present time, our estimate is that we would have to pay
Central States somewhere in the vicinity of $2 million dollars.
However, using an accepted industry formula, Charlie is confident
that ultimately we will only have to pay somewhere between $700-950
thousand. I know,
that's still a lot of money.
However, since July 1 we have been taking the same amount of money
that we had been sending to Central States for each of our guys and have contributed it instead to their private 457 plan (which is something akin to an IRA). At least, the guys can collect on that and we are no longer flushing good money down the toilet.
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| If one part of the boat is sinking how can another not sink at all? |
We heard nothing from them in July but about a month ago in late
August we received a lengthy response from them that amounted to a
counter-offer. Essentially it said this: “Stay in. Pay us $650,000
as if you were brand new to the plan and if we go under we won't come
after you for any more. We promise.” Of course, Carmen and I had a
conference call with Charlie shortly afterwards to assure us we were
reading the document correctly. He generally concurred with our understanding. It
was his opinion that while the city could do that if a ship is
sinking and no one is coming to the rescue, do you really want to hold
firm and “not give up the ship.” Well, that would be dumb. So we
instructed Charlie to respond to Central States accordingly by stating in plain English, “Ah, thanks but no thanks. We want out.”
Of course, the guys' union rep got a hold of them shortly after that
decision went public in the Alert and informed them that if we went forward with
that decision – to sever ties with Central States - they each could
stand to lose between 35-40% of their pension benefits. I emailed
Charlie to get his opinion on what their union guy was telling them and the next day he
responded that while Central States can do whatever they want they
would be punishing their own members for something they had no say in
whatsoever. After all, they did not vote to decertify from the
Teamsters. The city didn't ask their opinion whether or not it was a
good idea to leave the plan. In other words, it's not their fault.
They are not culpable whatsoever. A bomb has gone off and they are collateral damage. So why would the Teamsters want to
punish their own people for a decision they had nothing to do with?
Their union rep didn't show at last week's council meeting to offer
any answers to that question. In any case, according to Charlie, the
fund is in such bad shape now that they will ultimately cut benefits
anyway, sooner or later.
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| Most of us get this; those who don't might work for Central States |
We're not out of the woods yet with this matter but we're slowing
finding our way. Charlie has been practicing pension law for 28
years. It's all he does and by his estimate the city will be free
and clear (after ponying up and paying the lump sum exit fee) by Christmas. It's a pricey "gift", as Christmas gifts go, but at
least we'll be safe from the undertow that is sure to follow the sinking of one of the largest pension plans in the country.
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| We have some great people who work for the city. With the exception of Dan (far right), these are some of the local faces who will be ultimately affected by Central States' failure |
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