GREEN WATCH BANNER TO BE INSERTED HERE James Hoffa (Both of Them) and the “Central States” Crackup The Teamsters’ pension plan endangers the U.S. agency that backs pensions By Carl F. Horowitz Summary: Jimmy Hoffa, the legendary boss of the Teamsters union, vanished in 1975, presumably meeting his demise at the hands of associates from the world of organized crime. Yet his legacy lives on, in the form of the Central States Pen- sion Fund. Today, the fund pays $3.46 in retirement benefits for each dollar it col- lects from employers, and it has a long- term shortfall so large that it could bust the nation’s pension guarantee system. our decades ago, the International During a 1957 Senate racketeering hearing managed by Senate staffer Rob- ert F. Kennedy, Jimmy Hoffa of the Teamsters union rubs his eye; U.S. Vice Brotherhood of Teamsters’ Central President Joseph Biden with the current Teamsters president, James P. Hoffa. States Pension Fund was a project F tral States Pension Fund, is a Teamster organized-crime associate, Allen Dorf- of organized crime. In the future, it may well be a project of a federal agency, the pension plan with a colorful history. man. The stepson of corrupt Teamster local boss Paul “Red” Dorfman, the Pension Benefit Guaranty Corporation— Hoffa & the Mob and, as a consequence, the agency itself younger Dorfman more than once had may need a bailout. Teamster General President James R. been indicted, but avoided conviction. “Jimmy” Hoffa, father of current Team- Eventually, his good luck streak ended. This past September, the Rosemont, Ill.- sters chieftain James P. Hoffa, initiated In February 1972, he was convicted based pension fund, which currently en- the fund in 1955. His management style in New York for illegally obtaining a rolls more than 400,000 active and retired left something to be desired. In 1963, $55,000 kickback from a recipient of Teamsters in 37 states, filed a restructur- the elder Hoffa and six other individuals a Central States loan. And in Febru- ing plan with the U.S. Treasury Depart- were indicted in Chicago federal court ary 1974, just two months after his ment that proposed cutting benefits on for fraudulently arranging $25 million December 1973 release from prison, average by 23 percent. The action was in pension loans and diverting $1.7 mil- he was indicted for fleecing the fund the first of its type under a law enacted lion of that sum for their own personal out of $1.4 million. Though forced to in December 2014, the Multiemployer use. The defendants were convicted by resign his position of “consultant,” he Pension Reform Act. Central States a jury the following year. Even after re- Executive Director-General Counsel porting to federal prison in March 1967, Thomas Nyhan explained the dilemma: Hoffa was implicated in a scandal in February 2016 “The longer we wait to act, the larger the which he allegedly received 10 percent benefit reductions will have to be.” kickbacks on highly questionable real James Hoffa (both of them) and the “Central States” shortfall The union bears a real responsibility for estate loans to various Central States Page 1 its dilemma. The roots of the problem “consultants.” go back decades. The Central States, Management of the Central States Labor Notes Southeast and Southwest Areas Pension fund nominally was in the hands of a Page 6 Fund, or as it is simply known, the Cen- Chicago-based insurance executive and continued to run operations from the resulted in the convictions of Teamster The Central States Pension Fund still background—and to steal. The U.S. General President Roy Williams and bears the scars from those Mob days, Labor Department estimated that Dorf- Chicago mobster Joey “the Clown” even though the link between the two man had looted at least $5 million by Lombardo, along with two other men. worlds formally ended long ago. In the early ’80s. Lombardo, in fact, had been indicted 1982, following a federal investigation, By numerous accounts, especially in- with Dorfman in a separate case involv- the Teamsters entered into a consent vestigative reporter Dan Moldea’s book, ing an attempt to extort $800,000 from decree with the Justice Department to The Hoffa Wars, Hoffa’s successor, a Chicago businessman whose home cede control of its retirement funds to a Frank Fitzsimmons, not only was aware was bombed. consortium of banks. The arrangement remains in force. Unfortunately, it has of the corruption, but was very much in Like Jimmy Hoffa, Allen Dorfman the thick of it. A source for an investi- not been sufficient to stave off another took a lot of secrets to the grave. The looming disaster. gative series appearing in the Oakland Central States Pension Fund faced a Tribune in the fall of 1969 explained: premature burial as well, something The insolvency cascade “Frank [Fitzsimmons] hardly makes a confirmed in a mid-’70s audit by Price Declining union membership, deregula- move related to financial matters without Waterhouse. The report concluded that tion of the trucking industry, and longer consulting Dorfman.” By staying in nearly 90 percent of fund investments life expectancies have combined to good graces with the mob, Fitzsimmons were related to real estate, a figure way raise expense-to-income ratios to the not only received a cut of the action, beyond the norm for comparable union point where they are not sustainable. but also positioned himself to keep his plans. What’s more, over a third of all The Central States Pension Fund now job in the event that Jimmy Hoffa, who loans were in default. A July 22, 1975 pays out $3.46 in retirement benefits would be pardoned by President Nixon article in the Wall Street Journal sum- for each dollar it collects from employ- in December 1971, wanted it again. marized the audit: “Through such loans ers. It’s true that assets have rebounded Hoffa, of course, did want his old job . the fund has passed millions of dol- from $7.6 billion in losses during the back. And his effort didn’t end well. lars to companies identified with Mafia 2008 stock market crash at the rate of He permanently disappeared on July 30, members and their cronies. It has also 13 percent a year. Yet liabilities, if it 1975, the day of a scheduled “business lent millions of dollars to employers of can be believed, have risen even faster. luncheon” at a Detroit-area restaurant. Teamsters; and according to . rank- Indeed, they now exceed assets by more Allen Dorfman would be murdered, and-file Teamsters, the union sometimes than $17.5 billion. And the gap has been gangland-style, on the parking lot of a deserted members’ interests in favor of widening by around $2 billion a year. At suburban Chicago hotel in January 1983. the employer-borrowers.” A Justice the current rate, the fund likely will be- He had been free on $5 million bond Department official noted at the time: come insolvent in about 10 to 15 years. awaiting sentencing for his conviction “The thing that’s absolutely frighten- If that occurs, it could trigger insolvency the previous month for attempting to ing is that through the Central States at a longstanding Washington, D.C. bribe Sen. Howard Cannon, D-Nev., Pension Fund, the mob, quite literally, institution: Pension Benefit Guaranty in return for Cannon’s vote against a has complete access to nearly a billion Corporation (PBGC). trucking deregulation bill. The case also dollars in union funds.” Pension Benefit Guaranty Corporation, like Federal Deposit Insurance Corpora- Editor: Steven J. Allen The most infamous investment was a tion, is a government-sponsored insur- Publisher: Scott Walter $62.7 million loan approved by Mid- ance agency. Created in 1974 under the Address: 1513 16th Street, NW west crime bosses to buy the Stardust Employee Retirement Income Security Washington, DC 20036-1480 and the Fremont hotel-casinos in Las Act (ERISA), PBGC is authorized to Phone: (202) 483-6900 Vegas. Front man Allen Glick under- take over pension plans under certain E-mail: [email protected] stood his job was to follow Mafia orders, circumstances and compensate benefi- Website: CapitalResearch.org especially the one requiring him to look the other way while Mob functionaries ciaries up to specified dollar limits. Labor Watch is published by Capital skimmed millions of dollars from count The Central States Pension Fund is a Research Center, a non-partisan education rooms. The corruption and violence in multi-employer, as opposed to single- and research organization classified by the that venture were amply chronicled in employer, retirement plan. A multi- IRS as a 501(c)(3) public charity. Reprints Nicholas Pileggi’s book, Casino: Love employer plan is funded by two or more are available for $2.50 prepaid to Capital and Honor in Las Vegas, the source employers, typically in the same or a Research Center. material for Martin Scorsese’s classic related industry. If those companies are 1995 movie Casino. unionized, then the union often contrib- Page 2 Labor Watch February 2016 utes funds. Moreover, like the employer, of September 30, 2014, these pensions taken. If the Treasury Department, the union makes appointments to the produced a whopping combined deficit after consulting with PBGC and the plan’s board of trustees. Of the roughly of $42.4 billion, a more than fivefold Labor Department, gives a green light, 41 million active and retired employees increase from the $8.3 billion gap of a current and future beneficiaries have (along with eligible family members) year earlier. By September 30, 2015, the the right to vote on whether to accept now covered by defined-benefit pension deficit had risen to $52.3 billion.