Fund Under the Gun

Imagine a vast investment trust, say $1.5 billion or so, that each year takes in hundreds of millions of dollars in small, but regular, tax-deductible cash contributions. Fantasize further that the trustees, with impunity, sink the money into anything they like--the pet projects of some dear friends, for example --while at the same time cutting out of the kitty many of the fund's supposed beneficiaries. Now let imagination truly soar: the trust's investment income is all taxfree.

Such a gravy train actually exists. It is called the Central States, Southeast and Southwest Areas Pension Funds of the International Brotherhood of Teamsters, and it is a main source of the bare-knuckled union's awesome power. But last week the Internal Revenue Service challenged that power by canceling the fund's tax-exempt status, retroactive to Jan. 31, 1965. The IRS will surely have to defend its decision in court, but so far it has not even announced officially that it has changed the fund's status.

Should the IRS win its point, several years hence, the fund's income theoretically will be taxable at the same rate that applies to single individuals: 70% on nonsalary income exceeding $100,000 a year. Actually, the fund probably will still be free of taxes, past or present. Any benefits payments it makes are deductible, and they tend to be greater than the fund's investment income. Ironically, the real losers will be either employers who contribute to the fund or rank-and-file union members. Employers, who pay $22 per week into the fund for each of more than 420,000 Teamsters in 22 states, could no longer deduct those payments as a business expense. They might choose to add the $22 to wages instead--wages are a deductible expense--in which case the union members themselves would have to pay taxes on the extra income. Then the workers might have to start making their own, nondeductible, contributions to the fund.

The fund may be in for some real trouble, too. Since late last year, a joint task force of the Departments of Labor and Justice has been poring manfully through a stack of documents hundreds of feet thick to unravel the story of the fund's operations. The Labor Department conceivably could order removal of some or all of the fund's 16 trustees --eight union men, eight representatives of management--if it finds investments that were imprudent or entailed conflicts of the trustees' interests. The Justice Department could start criminal prosecutions for fraud.

Shaky Ventures. The IRS got involved because it is empowered to cancel a pension fund's tax exemption if trustees have misused the fund's assets to the detriment of pensioners. Over the years, the Teamsters' fund has been accused constantly of doing exactly that. Since its inception in 1955, the fund has been notorious for making large loans to shaky business ventures, many of them controlled by Mafia chieftains who are cozy with Teamster bosses. Investigators from time to time have turned up instances of kickbacks to union officials or underworld figures for arranging loans.

Some of the loans have not been secured, but granted on the basis of a handshake or a vague document. Sometimes a piece of property is mortgaged to the fund, sold and resold, then serves as collateral for several loans. The fund has been accused of taking little care to ensure its borrowers' ability to repay. The Labor-Justice task force has reportedly discovered that hundreds of millions of pensioners' dollars simply vanished.

Task Force Chief James D. Hutchinson has made few of his findings public, but he did reveal last week that the fund had disbursed a staggering $780 million in real estate loans and mortgages--a huge proportion for a fiduciary institution. La Costa, the lavish resort near San Diego frequented by Teamster bosses and racketeers, was built with an estimated $57 million of the fund's money; $40 million reportedly has never been repaid. More than $200 million has been lent by the fund to finance hotels and casinos in Las Vegas.

At the same time, many Teamsters hoping to retire at age 57 and reap the fund's maximum benefit payment of $550 monthly have found themselves disqualified by intricate and arbitrary eligibility requirements. Teamsters President Frank Fitzsimmons boasted at the union's convention last month that 93% of the applications for pensions are accepted--but many Teamsters who find, for example, that they have inadvertently run afoul of continuous-service requirements never bother to apply.

In the wake of the IRS action, opposition to Fitzsimmons within the union is already increasing. "The boys are really pissed," says John Sikorski of the Professional Drivers Council, a dissident group that last week received a slew of membership applications. "This hurts them where they feel it--in the wallet." But Fitzsimmons was re-elected last month, and the Teamsters constitution makes it virtually impossible to remove him until his new term expires in 1981.

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