Yellow’s Demise Won’t Sink Central States, Due to US Bailout (1)

The Biden administration’s multiemployer retirement plan bailout program will protect the nation’s largest pension from being dragged under by trucking giant Yellow Corp.'s impending demise.

Yellow’s prolonged funding woes gave the Central States, Southeast and Southwest Areas Pension Plan enough forewarning to factor the company’s possible bankruptcy into the special financial assistance package it applied for and received under Biden’s American Rescue Plan (Pub. L. No. 117-2) late last year.

Unpaid contributions and withdrawal liability Yellow still owes the Teamsters union pension are unsettled, however, as bankruptcy courts could begin dividing up the firm’s assets. The case could serve as a proving ground for whether judges count SFA bailout funds in determining a pecking order among creditors.

The influx of cash that union-brokered pensions are receiving under Biden’s first major legislative victory is proving vital in staving off the extinction of traditional lifelong retirement guarantees.

Without the $36 billion Central States received from the federal government, a Yellow bankruptcy would have “destroyed” the pension, said Josh Gotbaum, a Brookings Institution guest scholar and former director of the federal government’s Pension Benefit Guaranty Corporation, which doles out SFA money.

“It would have meant a disaster,” Gotbaum said. “Two years ago, Central States and about a quarter of the nation’s multiemployer pension plans were in trouble, and they were in trouble because the employer would go out of business and the plans would still owe pensions to their employees.”

A Major Player

Yellow’s 10,500-plus active participants represented roughly a quarter of the fund, according to a recent court filing. The company’s combined 2021 contributions totaled more than 15% of total receipts, US Labor Department records show.

Contributions were inflated slightly to allow Yellow’s two less-than-truckload participating affiliates, YRC Inc. and USF Holland Inc., pay down the outstanding principal on a 2011 contribution deferral agreement. That agreement meant Central States reduced Yellow workers’ non-guaranteed supplemental benefits, an arrangement that can’t be undone by the influx of SFA funding.

Underfunded plans were allowed to reduce protected benefits under the Multiemployer Pension Reform Act of 2014 (Pub. L. No. 113-235) to prevent them from going under. The American Rescue Plan covers the costs to make those workers whole, but it can’t be extended to plans that reorganized such as Yellow.

Former Yellow workers with benefits in the plan may continue to receive the reduced benefits, but those benefits will be guaranteed, said Gotbaum.

The plan may have to absorb Yellow’s share of unfunded liabilities, the $8.6 million in newly missed pension contributions, and a $41 million gap in health plan funding.

Predicting its collapse, Central States filed suit late last month in the US District Court for the Northern District of Illinois to collect payment, though Judge Jorge L. Alonso denied the plan’s motion for a preliminary injunction. The initial claim should give the pension a slightly heightened priority for payout in bankruptcy proceedings.

If a bankruptcy judge takes into account the $36 billion Central States just received from the government, that claim may have little standing, said Michael Schloss, of counsel at the Wagner Law Group LLC. But there’s no precedent for how bankruptcy courts should factor in federally funded pension bailouts, because they’ve never occurred before.

“The prospects of recovering any of the missed delinquent contributions is uncertain,” Central States said in a statement to Bloomberg Law.

Downsized Plans

What is certain is that the $50 million hit Central States may take in the coming months isn’t going to do the kind of damage it would have done a year ago. The benefit plan removed Yellow workers from its retirement and health accounts on July 23, a move the board had a fiduciary obligation to make in order to stop the bleeding, Schloss said.

Even assuming Central States isn’t given priority in bankruptcy proceedings, the plan has already prepared for itself a soft landing on a pillow of bailout funding.

“This doesn’t seem to have come as a big surprise to Central States,” said Lynn McGuire, a Butzel Long PC shareholder in Ann Arbor, Mich. “They were preparing for this.”

In its application for special financial assistance last year, Central States told the PBGC it assumed “zero future withdrawal liability payments” and that its contribution base unit projection “includes a probability of withdrawal due to bankruptcy.”

“In such an event, the assumption is that any withdrawal liability collection would be de minimis,” the application states.

The infusion of taxpayer-funded cash has left Central States with a funding ratio of 97.5%, according to the plan’s latest annual funding notice. Without the SFA money, the pension would have been only 14% funded, with $8 billion in assets and $55.4 billion in liabilities.

Losing out on Yellow’s more than $70 million in annual employer contributions may mean Central States slims down, according to Jean-Pierre Aubry, associate director of state and local research at the Center for Retirement Research at Boston College.

It could be left a shell of what it once was, but that shell will be funded, Aubry said.

“That’s the trend to take away from this,” he said. “Multiemployer pension plans are getting a whole lot smaller.”