Unionized trucking companies could get a lift from a provision of the $1.9 trillion coronavirus aid package that throws a fiscal lifeline to struggling multiemployer pension plans.
Analysts say the measure President Biden signed into law this month should help clear a cloud that investors see hanging over truckers ArcBest Corp. and Yellow Corp. The unionized carriers are the top two active employers in the largest of the plans likely eligible for relief, the Teamsters’ Central States Pension Fund, which is projected to become insolvent in 2025.
“There was always the lingering risk that if there was severe risk of underfunding you’d have to pay extra into the Central States,” said Citigroup Inc. transportation analyst Christian Wetherbee.
The support also could benefit delivery giant United Parcel Service Inc., which withdrew from the fund in 2007 but as of the end of last year potentially retained some liability if Central States became insolvent, according to securities filings.
Companies including Anheuser-Busch InBev SA, Conagra Brands Inc. and Marathon Oil Corp. also contribute to the plan, whose participants also include truck drivers, package delivery drivers and warehouse workers. Central States was 19.5% funded as of Jan. 1, 2020, the most recent period for which figures are available, with $11.44 billion in assets and $58.51 billion in liabilities.
Multiemployer pension plans are maintained under agreements between unions and multiple companies in particular sectors. Their financial stability has wavered in recent years due to changes in demographics, shifting business trends and a decline in the numbers of workers who are union members, leaving many plans underfunded.
The federal Pension Benefit Guaranty Corporation backstops benefit payments for about 10 million participants in those plans, but the fund supporting the assistance is projected to run dry in 2027, according to the Congressional Budget Office.
In trucking, the multiemployer pension risks are largely concentrated in the less-than-truckload sector, where carriers combine shipments from multiple customers on a single truck.
Yellow, previously known as YRC Worldwide Inc., and ArcBest’s ABF Freight segment are among the largest carriers in the sector, employing thousands of unionized workers and competing against rivals unencumbered by the higher pension and benefits costs that unionized operators typically carry.
Under the legislation, PBGC would provide an estimated $86 billion in grants to qualifying multiemployer plans to cover benefits through 2051. More than 50 Teamsters pension plans are now eligible for that assistance, according to the union.
The provision in the Covid-19 relief plan essentially removes much of the risk carriers may have faced if Central States or other multiemployer plans collapsed. Analysts said such failures otherwise may have left companies facing liabilities, such as increased contributions to the funds.
Mr. Wetherbee wrote in a March 10 research note that for ArcBest the federal backing “will effectively eliminate a valuation overhang that has for years contributed to its sizable valuation discount vs. higher quality peers such as Old Dominion and Saia…As a result we would expect to see the company’s valuation spread to premium LTL carriers narrow substantially.”
An ArcBest spokesman said the aid is “encouraging news” for Teamster-represented drivers, dockworkers and retirees in the company’s ABF Freight business.
“While we cannot determine the contribution rates that will be required under future collective bargaining agreements,” he said, “we believe future contribution rates to these plans will be less likely to increase as a result of the passage of this act.”
The pension-relief provision also may help ArcBest and Yellow compete for drivers and dockworkers because it provides greater certainty of retirement benefits for unionized workers.
“This relief will secure the hard earned retirements of many front line American workers including members of the Yellow team and hundreds of thousands of retirees in other industries,” Yellow spokeswoman Heather Nauert said.
For UPS, the bill could reduce or eliminate the company’s potential liability associated with its 2007 agreement to withdraw from the Central States fund, said Jack Atkins, a transportation analyst at investment bank Stephens Inc.
A UPS spokesman declined to comment.
This story has been published from a wire agency feed without modifications to the text.