Date: Wed, 20 Aug 1997 23:07:42 -0400
Subject: M-I: UPS Pensions & Class Conflict over Capital
From: jschulman-AT-juno.com (Jason A Schulman)


August 20, 1997

Teamsters, Not Company, Will Reap Benefits of Bull Market


By DAVID CAY JOHNSTON

<Picture: T>he Teamsters' tentative settlement with United Parcel Service
maintains a pension plan in which the benefits of the rising stock market
flow to workers through increased retirement benefits instead of to the
company through lower costs.

Because of the rising stock market, the typical UPS driver's pension
improved by about 60 percent from 1987 to 1994, according to Teresa
Ghilarducci, an associate professor of pension economics at the
University
of Notre Dame.

Had the kind of pension plan that UPS wanted been in effect during those
years, Professor Ghilarducci said, pension benefits would have risen by a
fraction of that amount, but the company would have seen its annual
pension costs decline or possibly even vanish.

UPS participates in 21 defined-benefit pension plans, called
multi--employer plans, which cover workers at many trucking companies.
The
Teamsters union and the companies jointly oversee investment of the
pension funds in stocks, bonds and real estate.

In multi-employer plans, each company contributes a fixed amount that is
usually based on the number of hours worked by its employees. Over all,
8.1 million workers participate in such plans, the Labor Department said
on Tuesday.

The more common type of plan, called a single-employer plan, covers
workers at one company. The Labor Department said 32.3 million workers
were in such plans.

Single-employer plans may be owned by the company or jointly administered
with a union, as UPS had proposed. In either case, the company
contributes
as much as is needed to cover benefits, with many companies not having to
make any contributions in recent years because of the rising stock
market.

The reason that the 20 percent of workers in multi-employer plans benefit
from the rising stock market has to do with tax law. Congress limits the
amount of money in pension plans, denying tax deductions for new
contributions to any plan that has 1.5 times as much as it needs to pay
pension benefits. When that limit is reached, the only way to make future
contributions tax-deductible is to increase benefits until the funding
ratio falls below the limit in the tax code.

When the full funding limit is reached in a single-employer plan, the
company not only can stop making contributions, it can also even take
back
the surplus.

Companies can also increase benefits, but that happens far less
frequently, Professor Ghilarducci found after analyzing every pension
plan
report filed with the Labor Department in 1980 and 1993 to determine
their
generosity factor, which is the year-over-year increase in the value of
benefits to each worker.

The generosity factor for single employer plans rose to $900 from $700,
she said, while multi-employer plans increased to $1,000 from $400. That
means that the generosity of multi-employer plans grew at nearly nine
times the rate of single-employer plans.

Increased generosity shows up in bigger pension checks and other
benefits,
like shorter eligibility requirements for retirement benefits, larger
payments to a surviving spouse and retirement with full benefits at age
50, compared with the typical normal retirement age of 65 in
single-employer plans.

The tentative settlement also works to the advantage of Teamsters in the
plans who do not work for UPS.

"The fact that UPS is going to remain in the multi-employer plans is very
good news for the Teamsters institutionally," said Bob Walter, a pension
lawyer with Buck Consultants in Secaucus, N.J. "If UPS had won in this
issue, it could have started a run on these plans by other employers."

Multi-employer plans, which are common in trucking, construction and
other
highly fragmented industries, allow workers to switch employers within an
industry without reducing the value of their pension. Thus any UPS
drivers
laid off because of business lost during the strike will not lose pension
benefits if they find work with other employers in the multi-employer
plans.

Workers in single-employer plans who switch employers end up with smaller
retirement checks because their pension from the first employer is frozen
and they must start over earning retirement benefits. Under federal
pension rules, an individual who works for nine such employers over 40
years can end up with no pension, while the same person in a
multi--employer plan would get full benefits.

Harry Conaway, a pension expert at William M. Mercer, the nation's
largest
benefits consulting firm, said one reason UPS wanted out of the
multi-employer plans was the way the law treats money owed to such plans
by employers that go out of business without having made all of their
contributions. The other employers must make up these shortfalls if gains
from investments do not cover them, said Conaway, a former chief of
pension tax policy in the Reagan administration.

He said a dominant employer in such plans can end up subsidizing
competitors. Conaway cited as an example a multi-employer plan that
requires 1,000 hours of work annually for full benefits and which
requires
a specific dollar contribution by the employer for each hour worked. A
company whose workers average 1,600 hours, but whose competitors average
1,000 hours, would effectively subsidize the pensions of workers at
competing companies.




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