Members of the International Brotherhood of Teamsters and their supporters attend a rally outside the Capitol in Washington, D.C., U.S., on Thursday, April 14, 2016. The demonstrators are protesting a plan by the Central States Pension Fund to reduce payments to retirees. Photographer: Drew Angerer/Bloomberg

© 2016 Bloomberg Finance LP

First, a brief item of news: the Joint Committee which was to have reported on its recommendations with respect to the troubles of multi-employer pensions, has instead reported that they will miss the deadline, but are continuing to work on solutions. No one is surprised by this announcement, as there is no solution to this crisis that won’t cause a lot of pain — the only question is how that pain is to be shared among employers, workers, retirees, and the federal government.

While we continue to wait for the outcome of their deliberations, here’s a follow-up to last week’s article on the topic. Readers will recall that I compared Dutch legislation, with its strict demands that plans be overfunded, to American plans which, until comparatively recently were effectively prevented from building up funding reserves to be prepared for future losses.

There is one plan, however, whose pension plan underfunding woes dwarf all others, and whose story needs to be told separately, and that’s the Central States Teamsters Plan. This plan has 400,000 participants, and is funded at either a 38% level (“accrued liability”, with a higher interest rate) or 28% (“current liability” – a lower rate), according to their most recent plan filings, with a total liability of $41 billion or $56 billion, depending on the interest rate, and assets of only about $15 billion. The plan is expected to be insolvent in 2025 if no actions are taken to remedy the situation. No other plan comes close to this level of shortfall, at least in terms of the absolute level of underfunding.

So how did this plan get into so much trouble?

Unlike other plans, the Teamsters plan did not find itself in a position of being overfunded, promising greater benefits as a result, then struggling in the face of market downturns.

Instead, in the short term, there are two villains.

As chronicled by Jasmine Ye Han at Bloomberg back in August, Central States (or the Central States, Southeast and Southwest Areas Pension Fund, to cite its full name), one cause was the deregulation of the trucking industry:

When Congress passed a law in 1980 that led to the deregulation of the trucking industry, it caused tens of thousands of trucking companies to go out of business. By 2003, Central States lost 70 percent of the employers that contributed in 1980.

“If you look at the top 50 employers in 1980, now only three of them still exist (in the plan),” Tom Nyhan, executive director of the Central States fund, told Bloomberg Law.

This hit Central States particularly hard, as Ye Han notes, because its plan was limited to the trucking industry. In contrast, the Western Conference of Teamsters Pension Plan, though likewise a Teamsters plan, was structured differently.

Trucking deregulation didn’t hit the Western Conference the same way because it had a more diverse employer base, said Chuck Mack, the plan’s co-chair.

“We have been structured as a plan that would open to any employer who wants to come in. As a result we have food processing workers, public employees, bus drivers, etc.,” he said. “If employers can only contribute 50 cents an hour (per worker) not $5, they can do that. That makes a difference in employers accepting the plan.”

The Western Conference plan’s largest contributing employers include United Parcel Service Inc., Costco Wholesale Group, Albertsons Cos Inc., and Allied Waste.

The second big hit that Central States took was that UPS exited the plan in 2007. This means that they ceased making pension contributions for UPS employees who were Teamster members, and began providing for their pensions by themselves. Whenever a participating company leaves a multi-employer pension plan, it must pay into the fund what’s called “withdrawal liability” as a means of compensating for underfunding in the plan. However, UPS withdrew in 2007, with a hurried contract ratification with the Teamsters enabling them to avoid changes to multi-employer plans coming into effect in 2008. Because the withdrawal liability payment required under legislation at the time did not fully compensate the plan for the losses it would experience, this and other withdrawals brought about further decreases in pension funding.

But here’s what’s important to understand:

In principle, neither of these factors should have caused the problems that they did. Had the plan been well-run and properly funded, and had principles of multi-employer plan design and the relevant legislation been designed to ensure long-term solvency rather than relying on new generations of contributors…