A federal judge has ended more than four decades of oversight of pension funds associated with The Teamsters by terminating a consent decree installed as a response to evidence that union leaders conspired with organized crime to access the money.
U.S. District Judge Thomas Durkin issued an opinion in the matter June 9 over opposition from the U.S. Department of Labor, which argued the potential for organized crime leaders to influence pension fund investments — nearly $40 billion in assets — is not completely abated.
Durkin explained an independent special counsel is in charge of ensuring compliance with two consent decrees covering three consolidated cases. The oldest dates to 1978, docketed as Reich v. Fitzsimmons, in which the DOL alleged trustees of Central States, Southeast and Southwest Areas Pension Fund mismanaged assets “by approving huge loans to applicants as a front for funneling money to organized crime,” Durkin wrote. “Many of the loans were delinquent.”
The consent decree from that instance has been in place since 1982. The newer one — stemming from alleged mismanagement of the Central States, Southeast and Southwest Areas Health & Welfare Fund — dates to 1985. Both required a court-appointed fiduciary to manage assets.
Durkin cited 2016 U.S. Government Accountability Office reports finding the funds’ return on investment rates were 4.9%, while comparable plans posted 4.8%. The judge said the average investment expense fee ration was 9% lower, while expenses were 16% lower; and agreed DOL oversight has been appropriate.
David Coar has been the independent special counsel since 2011. In an April 2023 report he recommended dissolution of the decrees. Durkin said Coar reported the funds have competent staff and trustees and comply with the 194 Employee Retirement Income Security Act. The funds specifically didn’t advocate for dissolution of the consent decrees, but also didn’t oppose Coar’s recommendation.
The Labor Department particularly sought to keep the decrees intact to preserve oversight of $35.8 billion in special assistance dollars the pension funds obtained through the 2021 federal American Rescue Plan, by which the federal government agreed to give aid to multi-employer pension funds facing risk of insolvency as the country grappled with the economic effects of the response to the Covid pandemic.
“The circumstances have so changed since 1982 and 1985 that the purpose of the consent decrees in the consolidated cases has long since been achieved,” Durkin wrote, saying even U.S. DOL Acting Secretary Julie Su agrees.
“Though the disposition of billions in taxpayer money is cause for heightened concern, the monitoring of SFA funds was not the original purpose of the consent decrees,” he added. “Further, the DOL and other government agencies have other avenues to supervise the funds outside the confines of the consent decrees.”
Even without the decrees, Durkin said, the DOL can still enforce ERISA’s fiduciary responsibility requirements through its broad investigatory and subpoena powers. The Internal Revenue Service can investigate plans it believes don’t meet minimum funding requirements and AROPA placed additional obligations on funds that got SFA allocations, such as requirements for annual compliance filings and being subject to PBGC audits.
“This court is no longer concerned about the threat of the funds being mismanaged or used as a front for organized crime, the prevention of which was the original purpose of the consent decrees. The defendants in all three cases have long since passed away,” Durkin wrote, noting one defendant, Allen Dorfman, was fatally shot “in 1983 in broad daylight at a hotel parking lot in one of the most infamous unsolved organized crime murders in Chicago history.”
Durkin concluded by thanking Coar “for his excellent work” and said “his comprehensive quarterly reports have been of critical importance” in making the decision.