teamsters pension part one

  read this jolly 
tale of two fundz 

   rip a dip dip dip 


its all here fanz 
the r4olling of america's most powerful union


long live jimmy H !

thank got the feds 
 shot em before all this shit 
went down 


======================

 November 15, 2004


 "in the 1960's and 1970's, 
the Teamsters' huge Central States pension fund 
was a wellspring of union corruption.
 Tens of millions of dollars 
were loaned to racketeers 
who used the money to gain control
 of Las Vegas casinos. 
Administrative jobs 
were awarded to favored insiders 
who paid themselves big fees. 
A former Teamster president 
and pension trustee was convicted 
of trying to bribe a United States senator.

 
Yet for nearly half a million union members
 who are expecting the fund 
to pay for their retirement,
 those may have been the good old days.

Since 1982, 
under a consent decree
 with the federal government,
 the fund has been run 
by prominent Wall Street firms
 and monitored by a federal court
 and the Labor Department.

 There have been 
no more shadowy investments,
 no more loans to crime bosses. 
Yet in these expert hands,
 the aging fund has fallen 
into greater financial peril
 than when James R. Hoffa,
 who built the Teamsters 
into a national power,
 used it as a slush fund.

The unfolding situation 
holds a hard lesson 
for others with responsibility
 for retirement money.
 What may appear as a sensible,
 conventional approach to investing
 - seeking a diversified mix 
of growth and income investments 
for the long term 
- can wreak havoc 
hen applied to a pension fund,
 especially one in a dying industry
 with older members 
who are about to make demands of it. 

But the kinds of investments 
that make sense for such a fund 
- like long-term bonds 
that will mature 
as members enter retirement 
- are not attractive 
to most money managers,
 because they generate few fees.
 Consequently,
 very few pension funds
 use such strategies today.

At the end of 2002,
 the pension fund 
had 60 cents for every dollar
 owed to present and future retirees 
- a dangerous level.
 In a rough comparison, 
the pension fund for US Airways' pilots
 had 74 cents for every dollar 
it owed in December 2002,
 just before it defaulted.
 During the bear market
 after the technology bubble burst,
 Central States' assets
 lost value as its obligations 
to retirees ballooned, 
causing a mismatch so severe 
that the fund 
had to reduce benefits 
last winter 
for the first time 
in its 49-year history.

"There never were benefit cuts 
in the 1970's," said Wayne Seale,
 52, a long-haul driver 
from Houston 
and one of about 460,000 Teamsters
 participating in the fund.

 "We were happy. We were being taken care of."

If the pension fund fails,
 it will be taken over
 by a government insurance program. 
In that case, some Teamsters 
would lose benefits.

Hoffa and his successors 
had put an extraordinary 80 percent
 of Central States' money 
into real estate.
 Instead of hotels, 
casinos and resorts,
 its new managers -
 first Morgan Stanley and later Bankers Trust,
 Goldman Sachs and J. P. Morgan 
- invested the money mostly in stocks,
 and to a lesser extent, in bonds.
 At the end of 2002, 
about 54 percent 
of the fund's assets 
were in stocks,
 somewhat less than the average corporate pension fund,
 which had about 74 percent
 of assets in stocks that year,
 according to Greenwich Associates,
 a research and consulting firm. 

Federal law 
calls for fiduciaries 
to invest pension assets 
the way a "prudent man" would,
 and the strategy used 
for Central States 
would certainly be familiar
 to wealthy individuals,
 philanthropic trusts,
 university endowments 
and other pension funds. 
The fund's investment 
results in recent years 
closely track median annual returns
 for corporate pension funds,
 according to Mercer Investment Consulting. 

The assets lost 4.5 percent
 of their value in 2001 
and 10.9 percent in 2002,
 but gained 25.5 percent in 2003,
 according to the fund's executive director 
and general counsel, Thomas C. Nyhan.

Morgan Stanley and J. P. Morgan 
declined to comment. 
Goldman Sachs defended its record,
 pointing out that it had exceeded 
its benchmarks in a very tough market. 

But the Central States situation 
shows that using stocks or other volatile assets
 to secure the obligations
 of a mature pension fund 
greatly increases the risk
 of getting caught short-handed 
in a down market. 
If that happens it can be nearly impossible
 to bring the ailing pension fund back.
 This is what has happened recently
 to pension funds at 
United Airlines and US Airways.

"Stocks are not a hedge
 against long-term fixed liabilities," 
said Zvi Bodie,
 a finance professor at Boston University
 who has long challenged 
conventional pension investment strategies.
 "For many, many years,
 right down to the present day,
 the dominant belief among pension investment people
 is fundamentally wrong. Now that's a big problem."

The record of a second big Teamsters' pension fund, 
covering members in the West,
 bolsters Mr. Bodie's arguments.
 The Western Conference of Teamsters fund
 has long shunned stocks 
and uses a totally different investment approach,
 a portfolio of 20- and 30-year Treasury bonds
 and other high-grade fixed-income securities 
that are scheduled to make payments 
when its retirees will be claiming their money. 
The Western Conference pension fund 
was not perceptibly hurt by the bear market. 
 
If the Central States 
were a younger pension fund,
 it could wait for the stock market 
to improve and bolster its value. 
But it already has more than 200,000 retirees 
collecting benefits 
of more than $2 billion a year. 

The companies that employ its members 
currently put in about $1 billion a year.
 Its trustees, 
made up of union officials 
and company representatives 
in equal numbers, 
have contemplated raising employer contributions,
 but the unionized trucking sector
 has financial problems, 
and for many companies 
a higher contribution 
would be a hardship. 
The biggest and wealthiest participating company,
 United Parcel Service,
 has been trying to leave 
the pension fund altogether.

The unionized trucking industry 
was more stable 
before deregulation in 1979, 
and so was the Central States pension fund.
 In the 1970's, the fund's assets
 grew by as much as 10 percent a year, 
according to some media reports
 from that period.
 Luck played a big part
 in that success,
 because the decade 
was a bad one for stocks and bonds
 Thus, the fund made better returns 
on its unorthodox real estate portfolio 
than it would have 
on a conventional mix of investments. 
The unionized trucking sector
 was younger, too.
 And it was growing,
 so there was more money available
 from employees 
and fewer pensions coming due.

Starting in the early 1960's,
 the fund loaned tens of millions of dollars 
for investments in Las Vegas casinos,
 including the Desert Inn, Caesars Palace, 
Stardust, Circus Circus, the Landmark Hotel
 and the Aladdin Hotel,
 according to a history by Edwin H. Stier,
 a former federal prosecutor 
hired by the union as part of its efforts 
to clean house.

The loans in those days
 typically involved a front man
 who signed the papers 
and a crime family raking off cash 
behind the scenes. 
The loan approval process
 involved kickbacks,
 threats and, in at least one case,
 a kidnapping.
 By the time Hoffa disappeared in 1975,
 the Central States pension fund
 had loaned an estimated $600 million
 to people connected 
with organized crime,
 according to Mr. Stier,
 who resigned his union appointment 
in April after questioning 
the union's ongoing commitment 
to rooting out corruption.

But many of the loans 
did serve their intended purpose,
 making money to pay for
 Teamsters' retirement benefits.
 The hotels, casinos and other real estate projects
, not all of which were connected 
to organized crime, 
were generally profitable,
 according to Mr. Stier,
 and before his disappearance
 Hoffa saw to it that his loans were repaid.

By 1977, after years of indictments,
 prosecutions, Congressional hearings and murders, 
federal regulators pressured 
the Central States trustees 
to resign and turn over the fund's assets 
to an independent money manager.
 The 1982 consent decree
 reduced the trustees' powers permanently,
 requiring the pension fund 
to choose an outside fiduciary 
from America's largest 20 banks,
 insurance companies
 and investment advisory firms.

The first to be named fiduciary
 was Morgan Stanley.
 Its duties were to pick money managers,
 to allocate the assets 
among them 
and to advise the new board of trustees 
on investment objectives and strategies.

As it happened, 
Morgan Stanley got the Central States mandate
 at a time of explosive growth 
in the money-management business.
 A landmark pension reform law
 had been passed in 1974,
requiring all companies
 to set aside enough money 
to make good on their pension promises
. With assets piling up 
in trust funds as a result,
 money managers were competing fiercely
 for a piece of the business.

Money managers promised pension funds
 big returns, 
and to get the big returns 
they began to add riskier assets
 to pension portfolios 
than pension funds had used before.
 Sleepy bond portfolios 
were livened up with stocks.
 Venture capital, junk bonds, 
securities of companies
 in developing countries 
and other exotica 
began to appear in pension funds. "


 read part two 

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