Wall Street Vultures May Have Wrecked the Central States Pension Fund

Bruce Vail July 21, 2016

Some 3,000 people rallied in front of the U.S. Capitol in April to demand government action on threatened pensions. Alex Adams (left), a retired truck driver from Toledo, Ohio, and Dan Bollett (center), also of Toledo, talk legislative strategy with Rep. Marcy Kaptur (D-Ohio). (Office of Rep. Kaptur)

Bow­ing to the demands of thou­sands of angry Team­sters, the fed­er­al Gov­ern­ment Account­abil­i­ty Office (GAO) has agreed to con­duct an inquiry into the past invest­ments of the Cen­tral States Pen­sion Fund, the orga­ni­za­tion that man­ages the retire­ment ben­e­fits for more than 400,000 union mem­bers, both retired and active.

One goal of the inquiry is to deter­mine whether Gold­man Sachs and oth­er invest­ment advi­sors caused the Fund to lose mon­ey, endan­ger­ing the future pen­sions of retired truck dri­vers and oth­er Team­ster union members.

Rep. Mar­cy Kap­tur (D‑Ohio) hailed the GAO action as a vic­to­ry for work­ers, many of whom have been pres­sur­ing Con­gress to take action on behalf of the pensioners.

It’s aston­ish­ing to now read about how Wall Street firms hired by Cen­tral States invest­ed retirees’ pen­sion funds in Iraq in 2008, right in the mid­dle of a full-scale war in Iraq. Or how they invest­ed in unsta­ble Russ­ian banks, when the econ­o­my there is in sham­bles, or how they sunk $1.4 bil­lion into risky Sin­gle A‑rated mort­gage-backed bonds in the mid­dle of the hous­ing melt­down. Some­thing is sim­ply wrong, and the GAO will get to the bot­tom of this,” she said. 

Behind the GAO review is the con­vic­tion by some of the retirees that invest­ment advi­sors like Gold­man Sachs and the Chica­go-based North­ern Trust Cor­po­ra­tion prof­it­ed off the Fund by push­ing ques­tion­able invest­ment strate­gies while rak­ing in exor­bi­tant man­age­ment fees. If true, a full account­ing might lead to a return of some of the mon­ey lost and par­tial repairs to the dam­aged finances of the Fund, pen­sion activists say.

The pen­sion plan lost $11 bil­lion in a 15-month peri­od,” while Gold­man was advis­ing the plan, and Gold­man should pay some of the mon­ey back, said Leroy Goans, a retired union truck dri­ver in Cincinnati.

Hopes that the GAO report will lead to a mas­sive recov­ery that will ensure exist­ing pen­sion ben­e­fits may be overblown, but the inquiry is worth pur­su­ing nev­er­the­less, says Nor­man Stein, a senior pol­i­cy advi­sor to Pen­sion Rights Cen­ter, a Wash­ing­ton, D.C.-based advo­ca­cy group that is advis­ing the Team­ster retirees.

Stein point­ed to a law­suit against North­ern Trust that was set­tled last year, in which North­ern Trust agreed to make good on pen­sion plan invest­ment loss­es involv­ing some of its oth­er clients, includ­ing the Chica­go Teach­ers’ Pen­sion Fund.

I don’t have spe­cif­ic knowl­edge regard­ing North­ern Trust, but the case illus­trates that pen­sion plans can some­times recov­er loss­es when its advi­sors behave improp­er­ly,” he says.

But Stein expressed doubts that a law­suit brought by Cen­tral States, even if mer­i­to­ri­ous, could recov­er suf­fi­cient sums of mon­ey to make a real dif­fer­ence in the plan’s finan­cial health.

Hav­ing the GAO look at this is a worth­while thing to do. The ques­tion is open on whether it will wind up help­ing the pen­sion­ers,” who face the threat of ben­e­fit cuts in the future, Stein says. We just need to be patient and let the GAO do its job” of a thor­ough review. 

Accord­ing to a spokesman at North­ern Trust, it has served as a court appoint­ed named fidu­cia­ry” to the Cen­tral States Pen­sion Fund since 2005, with respon­si­bil­i­ty and author­i­ty to con­trol and man­age the invest­ment of cer­tain assets of the Fund.

From incep­tion through Dec. 31, 2015, the North­ern Trust port­fo­lio has gen­er­at­ed returns in line with its bench­mark. The invest­ment loss­es stem­ming from the glob­al finan­cial cri­sis of 2008 were ful­ly recov­ered and are not a pri­ma­ry rea­son for the plan’s fund­ing gap,” spokesman John O’Connell said in an email.

Gold­man Sachs declined to com­ment for this story.

As report­ed by In These Times, chron­ic finan­cial prob­lems with the Cen­tral States Pen­sion Fund are threat­en­ing to force cuts in the pen­sion pay­ments to hun­dreds of thou­sands of retirees. Rep. Kap­tur summed up the prob­lem by esti­mat­ing the plan has about $16.8 bil­lion in assets but long-term pen­sion ben­e­fit oblig­a­tions of $35 bil­lion. With­out ben­e­fit cuts, or an infu­sion of new mon­ey, the plan ulti­mate­ly faces insolvency.

Kap­tur was one of the first mem­bers of Con­gress to come for­ward as an advo­cate for the Team­ster pen­sion­ers when they launched a grass­roots cam­paign last year to block pro­posed cuts. Con­gres­sion­al sup­port­ers of the cam­paign have been grow­ing steadi­ly in num­ber since then, and a for­mal request by Kap­tur and Sen. Sher­rod Brown (D‑Ohio) for the GAO to review the records of Cen­tral States was co-signed by more than 40 House mem­bers and 10 mem­bers of the Senate.

A bill joint­ly spon­sored by Sen. Bernie Sanders (I‑Vt.) and Kap­tur — the Keep Our Pen­sion Promis­es Act (KOP­PA) — now has 10 co-spon­sors in the Sen­ate and 52 co-spon­sors in the House. Because all of the co-spon­sors are tra­di­tion­al pro-labor Democ­rats, activists like Goans are not opti­mistic the bill will pass in its cur­rent form, but believe that con­tin­ued lob­by­ing of Repub­li­can mem­bers of Con­gress could pro­duce a compromise.

I think there are Repub­li­cans who want to solve this prob­lem. I don’t think any­body has hit on exact­ly the right solu­tion yet, but maybe the GAO will move us in the right direc­tion,” Goans says. 

Bruce Vail is a Bal­ti­more-based free­lance writer with decades of expe­ri­ence cov­er­ing labor and busi­ness sto­ries for news­pa­pers, mag­a­zines and new media. He was a reporter for Bloomberg BNA’s Dai­ly Labor Report, cov­er­ing col­lec­tive bar­gain­ing issues in a wide range of indus­tries, and a mar­itime indus­try reporter and edi­tor for the Jour­nal of Com­merce, serv­ing both in the newspaper’s New York City head­quar­ters and in the Wash­ing­ton, D.C. bureau.
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