The dust has settled from YRC Worldwide Inc.'s New Year's Eve brush with bankruptcy, and today the company is operating as a viable entity, albeit a fragile one.
In the background, however, sits a potential 800-pound gorilla: YRC's ability to meet pension obligations to its unionized employees come January.
As part of a series of mid-2009 concessions to help YRC conserve cash, its 35,000 employees who belong to the Teamsters union agreed to let the carrier suspend pension payments for 18 months. YRC is contractually obligated to resume contributions in January 2011. In 2011, it is expected to contribute slightly more than $300 per week—or about $15,000 a year—to the pension of each Teamster employee.
For a company struggling with hundreds of millions in losses, soft less-than-truckload (LTL) volumes, and a cut-throat pricing environment, coming up with $500 million or so to meet its 2011 pension commitments seems a tall order. YRC declined to comment other than issuing a statement through a spokeswoman that it is "contractually obligated to make the payments."
The Teamsters for a Democratic Union, a small but influential Teamsters dissident group often at odds with the mainstream leadership, doesn't think YRC can make it work. "It's a safe bet that come January, YRC will be pleading poverty and asking for an extension of the pension contribution freeze," the group said in a late February posting on its Web site.
Ken Paff, TDU's long-time president, was characteristically blunt-spoken about YRC's chances. "You want to bet the mortgage on that?" he asked in a phone interview with DC Velocity. "Because I'd hate to see you become homeless."
Others are equally skeptical. Calling it a "huge issue and potential problem," David G. Ross, analyst for Baltimore-based Stifel, Nicolaus & Co., said the Stifel analysts "don't see the company being able to make normal payments in 2011."
Charles W. Clowdis Jr., a long-time trucking executive who is today managing director, North America for the global trade and transport unit of consultancy IHS Global Insight, said YRC's pension challenges are a frequent topic of conversation with shippers across the nation. Clowdis said he doesn't know how YRC can generate the funds through its earnings power, and that it may have to resort to borrowing to raise the capital.
Should YRC need to restructure its pension payments, it will be up to Teamster leadership and the rank and file to agree to an extension of the freeze, allow YRC to gradually increase its contributions, or reject the carrier's request outright. At this writing, Teamster officials had not returned a written request for comment on the issue.
Pension overhaul sought
For his part, William D. Zollars, YRC's chairman, president, and CEO, has been actively pushing for an overhaul of the nation's multi-employer pension program, which is a pension arrangement between a trade union and a group of at least two employers in a single industry. Originally established to allow workers to change employers without losing their vesting privileges, the program required trucking companies to fund the pensions of workers and retirees from their companies and from competitors participating in the plan.
The scheme worked fine as long as there were numerous unionized trucking firms to spread the cost around. However, as company failures and consolidations over the past 30 years winnowed the ranks of unionized firms, the burden fell on those that remained to pick up an even larger portion of total retirement obligations, even for retirees who worked at bankrupt entities.
At this time, YRC and rival ABF Freight System employ most of the approximately 70,000 workers covered by the National Master Freight Agreement (NMFA), which governs labor relations between the Teamsters and trucking companies. Yet the two carriers are liable for the pension obligations of retirees who worked for competitors that have long since closed their doors and who were never employed at either YRC or ABF.
In 2007, UPS Inc., which is not part of the NMFA, paid $6.1 billion to remove 44,000 of its full-time employees from the Teamsters' Central States pension fund, one of the union's largest. UPS withdrew from the program because it wanted to avoid the future liabilities of paying into the Central States fund for its employees and for workers at other companies.
YRC and the Teamsters have thrown their support behind House legislation sponsored by Reps. Earl Pomeroy (D-N.D.) and Patrick Tiberi (R-Ohio) that would shift the pension liabilities of retirees from failed companies away from the Teamsters and to the Pension Benefit Guaranty Corp. (PBGC). The PBGC is a federal corporation that protects the pensions of more than 44 million American workers and retirees in more than 29,000 private single-employer and multi-employer defined benefit pension plans.
