A New York labor union has exhausted its pension fund, leaving thousands of retirees at risk and sparking calls for a forensic audit.
Teamsters Local 707, which represents 4,000 retirees out of Long Island, became the first of several embattled Teamster locals funds to fully exhaust its money. The union was forced to turn over its pension fund to the Pension Benefit Guaranty Corporation (PBGC), an independent federal agency.
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Several retirees discussed their distress with the New York Daily News. Tim Chmil spent 30 years as a trucker and deducted portions of every paycheck to cover the costs of a defined benefit pension. He has now seen that money dry up as the pension fund teetered toward insolvency.
"It's a nightmare, it has just devastated all of our lives. I've gone from having $48,000 a year to less than half that," Chmil told the Daily News.
Neither Local 707 President Kevin McCaffrey, nor the PBGC returned requests for comment.
The Pension Benefit Guaranty Corporation was created in 1974 to provide retirees with some insurance in the event that their union or company-sponsored pension system goes bankrupt. The PBGC often requires pensioners to take hair cuts off of their more generous retirement packages.
The program, which is funded by premium contributions from pension funds and fund sponsors, as well as investments rather than taxpayer dollars, places strict caps on payouts to retirees. The caps range based on the length of service from workers: a 30-year worker like Chmil can only receive $12,870 each year from the PBGC.
Chmil said that he is considering returning to trucking, but worries that his health will prevent him from finding work.
"I'm pretty broken down physically, I'd hate to go back on the road, if anyone would even have me," Chmil told the Daily News. "But if it's that or starve … what am I gonna do?"
The PBGC issued a press release announcing that "only 7 percent of current retirees and beneficiaries will receive their full plan-promised benefit amount." The agency said that it would provide $1.7 million to 707 retirees each month and that employer contributions would also be used to fulfill partial payments to the members.
"The poor financial condition of the 707 Fund is the result of several trends. They include a steady decline in the number of participating employers and aggregate employer contributions, increases in plan benefit levels that were not adequately funded, and investment losses suffered in the 2008-2009 financial crisis," the agency said. "The insolvency of the 707 Fund is the first among a number of larger financially troubled multiemployer plans with benefit levels that significantly exceed the PBGC guarantee limit."
Some union officials saw the writing on the wall years before the fund finally went bust. Former Local 707 president Louis Alimena called on the Labor Department to investigate the union's handling of pension money in 2013 after it had faltered. Alimena questioned the union's investing strategy—a complaint that eventually triggered a Labor Department investigation.
"Many of these Teamsters multiemployer pensions could have locked in an 8% return for fifteen years on assets when the pensions were already overfunded in 2000. Instead they chose to take unnecessary risks hiring equity investment managers. That worked just fine for Wall Street but killed our pensions," he told Forbes in 2013.
Labor watchdogs pointed to diminishing pension funds as a sign of decline in organized labor. Mark Mix, president of the National Right to Work Committee, said that guaranteed retirement security has been a major attraction to paying union dues. Faltering funds could spur workers to reconsider the benefits of union membership.
"Unfortunately the workers who were promised this [pension] and banked on this are now basically left holding tin cans rather than a promised pension," he told the Washington Free Beacon. "I think more of that happening will raise significant questions for union leadership. I think for a lot of rank and file workers the fact that their pensions are in jeopardy is a significant domino."
Several disgruntled 707 members are calling for a forensic audit of the pension fund in light of the crash, which union officials blamed on lost assets during the 2008 financial crisis. In February, workers launched a crowdfunding campaign with former SEC attorney Edward Siedle to conduct a forensic investigation into the union's handling of the fund to ensure that there was no "foul-play involved." The effort has received support from a group called the Concerned Teamster Local 707 Retirees.
"Across the nation workers participating in multi-employer pension funds are at risk of losing the limited retirement security they had and slipping into poverty," the crowdfunding site says. "Some Teamsters want answers to fundamental questions such as: What caused their pension to plummet in the past decade? Was the demise of the pension entirely unforeseeable, due to unknowable market forces or was foul-play involved?"
The union has raised $2,873 as of Feb. 28. It has until March 5 to reach its goal of $35,000.
Update 4:23 p.m.: This post has been updated to reflect a press release issued by the PBGC.