teamsters pension part two

more more more 

the big teamster rip 

where wally showed
 the wise guyz 
how the creamery 
really works 

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" 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. 

these investments could be risky, 
but the industry argued that losses,
 even big losses, 
in one year did not matter
 because a pension fund 
was a long-term proposition; 
over time, the losses would be recouped 
by even bigger gains.
 Buoyant markets reinforced 
this thinking in the 1990's,
 even though by then 
unionized trucking was in deep decline,
 and the Central States'
 ratio of active workers to pensioners 
was shifting perilously.
 
Records for the Central States pension fund 
are not complete,
 but they indicate 
that Morgan Stanley kept pace with industry trends,
 shifting the fund into stocks,
 particularly international stocks.

By 1997,
 more than one-third 
of the pension fund's assets
 were invested abroad, 
records show,
 far more than the norm
 for such funds.
 Greenwich Associates surveyed 
union pension funds in 2003
 and found that international equities 
made up less than 3 percent
 of their total assets.

A spokesman for Morgan Stanley
 declined to comment on the Central States investments,
 citing a policy of not discussing relationships
 with past clients. 
He pointed out, however, 
that international stocks 
did relatively well in the late 1990's.

Morgan Stanley was replaced as fiduciary 
by Goldman Sachs and J. P. Morgan in 1999 and 2000. 
(Bankers Trust served as fiduciary very briefly.) 
A spokesman for Goldman Sachs 
noted that his company inherited 
many of Morgan Stanley's investments 
and added, 
"Over the five years we have managed the fund,
 our performance has exceeded 
the relevant benchmarks." 
A spokeswoman for J. P. Morgan 
cited a policy 
of not discussing clients' business.

When the stock market crashed in 2000,
 the Central States pension fund 
had big bets on technology 
and telecommunication stocks,
 energy trading companies 
and foreign stocks. 
Some of these stocks
 became nearly worthless. 
But the resulting carnage 
was not apparent to many rank-and-file Teamsters
 until last winter, 
when plan officials announced 
that benefits would have to be curtailed. 

Meanwhile, drivers were making 
their retirement plans.

 the pension fund reduced benefit accruals, 
and  also began enforcing 
a rule that pensioners could not re-enter 
the work force, 
under penalty of having their pensions stopped.

In an annual report 
for the plan, there was a reference 
to a $77 million uncollectible loan.

it wasn't a loan at all
It was shares of stock
 in a bank in Russia,
 and it went belly up.
 the Labor Department and federal court officials 
were monitoring the pension fund.

The Labor Department does not generally 
regulate investment strategy,
 however. It was watching for signs 
of self-dealing,
 racketeering or other flagrant abuse.
 From that perspective,
 the fund was progressing well. 

Some Teamsters say more complete answers lie 
in the official progress reports 
for the pension fund, 
maintained for the federal courts 
as required by the consent decree.
 But those are secret.



The International Brotherhood of Teamsters,
 which is legally separate
 from the pension fund,
 commissioned independent investment 
and actuarial analyses 
of the pension fund in November 2002.

But the study's findings
 have not been released
 to the membership.

Many rank-and-file Teamsters 
complain that their questions 
about the pension fund
 have been met with bromides 
about unforeseeable market forces, 
and about an unusual convergence 
of stock market losses
 and low interest rates 
that is always described 
as "the perfect storm."

 They are unconvinced.

why weren't all these funds affected the same way?

The best clues may lie 
in the Western Conference of Teamsters pension fund. 
In the 1980's, 
when the Central States plan 
was shifting from real estate into stocks, 
the Western Conference trustees, 
acting on actuarial projections 

of future pension benefits, 
put together its conservative portfolio
 of high-quality bonds 
and other fixed-income securities. 
The bonds were held until they matured. 

Such an investment portfolio requires 
little stock research 
or trading
 and consequently generates 

little fee revenue for money managers,
 but it has served
 the Western Conference of Teamsters well. 
From 2000 to the end of 2002, 
when the Central States fund lost $2.8 billion,
 the Western Conference fund gained $834 million.

 in this country,
 The corporation wants to
 put the minimum aside today,
 and invest the rest
for  maximum risk 
hoping for maxiumum yield 
 That's the trouble "

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