By contrast, until the 1970's Louis Ostrer's link with organized crime was not obvious. Insurance was his line and he had a reputation for knowing the business very well, both in theory and in practice. Nonetheless, Ostrer had ties with organized crime figures.

Ostrer's associates included Anthony (Tony Ducks) Corallo, Johnny Dio, Anthony (Hickey) DiLorenzo, Ruby Stein, Nicholas (Jiggs) Forlane, Milton Holt and John Masiello, all of whom are well known organized crime figures.

IV. LOCAL 295 SEVERANCE TRUST FUND

THE AIR FREIGHT INDUSTRY IN NEW YORK

The truck drivers who deliver air cargo to and from and around the New York airports belong to Teamsters Local 295. There were about 1,400 members of Local 295. Its offices are located on the outskirts of the John F. Kennedy International Airport at 179-30 149th Avenue, Jamaica, New York. 32

The air freight industry in the New York area was comprised of one very large company-Emery Air Freight-and about 35 smaller firms, some of which had only two or three trucks.

DAVIDOFF CONTROLS LOCAL 295

In 1971, when Subcommittee Investigators began this inquiry, they found Harry Davidoff to be in firm control of Local 295. Davidoff was being paid an annual salary of $57,000 and had the use of a Lincoln Continental provided by the union. In addition, Davidoff, then 56, could look forward to a comfortable retirement of $20,000 a year and a severance payment from the local. Davidoff had also formed a new Teamsters local-No. 851-and had transferred to it all non-freight shops previously covered by Local 295. Housed in the same offices as Local 295, Local 851-the Miscellaneous Production and Industrial Workers Union-used the same phone and its secretarytreasurer was the same Harry Davidoff.

THE LOCAL 295 CONTRACT PROPOSAL

The air freight industry and Local 295 negotiated their labor contracts on a three-year basis. The contract entered into December 1, 1967 was to expire November 30, 1970. A new three-year contract was anticipated.

Accordingly, in 1970, Davidoff was putting together a wide ranging contract proposal that included demands for sizable wage hikes and new comprehensive work rules. Ultimately, Davidoff's demands were assembled in a huge document 50 legal size pages long.

Section 26 of the Davidoff document was entitled, "Severance Pay," and stated:

The parties agree to establish a severance bonus plan, which will provide a schedule of benefits of no less than one (1) week's pay for each year of employment. Said plan shall be based upon length of employment and will further provide for vesting of the employee's benefits in the event of termination for any reason provided said employee meets the eligibility requirements of the plan.

The Employer will contribute to the severance bonus plan, which is to be administered jointly by the parties, the sum of twenty-five (25) cents per hour for each employee covered by this agreement.33

U.S. General Accounting Office document of April 13, 1973 entitled, "Review of Plans, Programs and Financial Transactions Relating to the Severance Benefit Trust Fund of Local 295." (See Appendix III.) Local 295 wage and benefit demands, 1970.

At 25 cents an hour, computing on the basis of a 40-hour week, the employers were being asked to contribute a minimum of $10 a week. However, Davidoff altered that initial proposal considerably. He won from the trucking firms a promise to contribute $15 a week for each driver the first year of the contract; $30 a week for each driver the second year; and $40 a week the third year.

LOUIS OSTRER PROMOTES SEVERANCE PAY PLAN

While Harry Davidoff was planning his new contract demands, Louis Ostrer was in California seeking backing for his severance paylife insurance plan from insurance executives.

Ostrer went to the office of Otto Forst at 9777 Wilshire Boulevard in Beverly Hills March 25, 1970. Forst was chairman of the board of the First Executive Corporation, a holding company for several insurance companies, including Executive Life of New York.

Basically, the Ostrer idea called for severance pay trust funds to be formed exclusively from the contributions of management. About half the money in the fund would then be used to buy life insurance for the union members.

In a Subcommittee affidavit, sworn to May 31, 1972 in Baden Baden, Federal Republic of Germany, Otto Forst recalled the Beverly Hills meeting and Ostrer's enthusiasm for the severance pay-life insurance plan, a concept, Ostrer insisted, that would "revolutionize benefit practices under collective bargaining."

Forst, who was in business to sell insurance, was impressed. Ostrer spoke "in terms of hundreds of millions of dollars of face value insurance" and was so convincing that Forst agreed to have his Executive Life Insurance Company of New York provide the coverage for the kind of severance pay-insurance program Ostrer was promoting. Some seven months after the Beverly Hills meeting-in the fall of 1970-Ostrer had apparently persuaded Teamsters Local 295 to adopt his severance pay-life insurance concept. Forst said that he met with Ostrer on two visits to New York-on October 21 and 22 and November 17 and 18-and that Ostrer was now saying Local 295 was ready to start buying coverage.

Forst added that Ostrer, in both October and November, spoke precisely of what the terms of the employers' contributions would be $15 per worker per week for the first year; $30 per week for the second year and $40 per week for the third year. These were the exact contributions the employers agreed to in December of 1970. Forst said that Ostrer explained to him that slightly less than half of the employers' contributions would be available for the purchase of life insurance. On the basis of this assurance, Forst promised to advance Ostrer the first year's commissions as soon as the case was written.

FUND GROWS, ITS PURPOSE EXPANDS

Things were moving quickly. Section 26, the "Severance Pay” provision, of the original Davidoff proposal grew from 25 cents an hour per employee to $15 per week per worker, and then to $30 and $40 a week in the second and third years, respectively. The purpose of the fund was also expanded and a life insurance feature was added

34 Affidavit of Otto Forst, May 31, 1972. (See Appendix IV.)

that provided for 49.9 percent of the fund's money to be spent on insurance coverage for workers.

Soon Louis Ostrer was explaining to union and management representatives not only how the Ostrer concept of severance pay worked-but also how his concept of life insurance would go into effect. The truck drivers of Local 295 would have a severance pay plan that would return to them should they quit or retire or be laid off all the money contributed on each man's behalf by management. Next, at no extra cost, they would also have life insurance protection.35

SEVERANCE FUND GETS OFF TO ROCKY START

Payments of $15 per man per week were due and payable starting December 1, 1970. The various collective bargaining agreements were signed between the trucking firms and Local 295 from December 6 to December 16. Money for the severance fund was pouring in at the rate of $18,000 to $20,000 a week.

Harry Davidoff appointed five union members to the board of trustees of the new trust fund. A meeting was called. Representatives from several of the trucking firms attended. They designated five trustees to represent management on the board.

At the first few meetings, minutes were not adequately kept. So it is uncertain as to all that actually transpired. But the minutes do show there was considerable confusion as to how to proceed.30 Strong disagreements broke out. Two trustees of management-one from Emery Air Freight-resigned.

Through this rocky period, Louis Ostrer was a source of strength as he attended most of the meetings of the trustees and was helpful and ready to provide guidance. His advice was particularly well received as none of the trustees knew very much about managing a severance fund or setting up a life insurance program.

Ostrer was already a familiar figure to the Teamsters and to management. He had spoken to both groups previously about the severance fund. Now, the trustees, faced with the troublesome burden of having an on-going fund of their own, turned to Louis Ostrer to manage it, and help them make vital decisions.

The trustees of the fund seemed relieved to have Ostrer assume the responsibility of drawing up trust indentures, modifying the collective bargaining agreement when needed, seeking an insurance agency, using part of the severance fund money to buy life insurance, obtaining actuarial studies and, in general, just getting things moving.

Emery Air Freight, the largest by far of all the trucking firms, did have misgivings about the fund and Louis Ostrer. In fact, after their representative on the board of trustees resigned, Emery officials made a brief but futile effort to set up a separate trust for their own employees.

35 Rules and Regulations of Local 295 Severance Trust Fund; Agreement and Declaration of Trust Establishing the Local 295 Severance Trust Fund.

Minutes of meeting of trustees of severance trust fund, Local 295, March 17 and 31, 1971, Subcommittee memorandum of March 1, 1972 entitled, "Local 295 Severance Trust Fund, review of minutes of trustees meetings for October and November of 1971," from Jack Balaban to John P. Constandy; Subcommittee memorandum of July 5, 1972 entitled, "Review of minutes of trustees meetings, January, February and April 1972," from Jack Balaban to Joan P. Constandy; Subcommittee memorandum of November 6, 1972 entitled. "Review of minutes of trustees meeting of September 25, 1972," from Jack Balaban to John P. Constandy.

The union objected, saying it was bad precedent, might require several other separate trusts and would be foolish for the smaller companies to have individual funds. Emery gave up the effort.

Nonetheless, Emery Air Freight refused to participate in management's membership on the board of trustees and began making its contributions to the trust fund "under protest."

DETAILS OF THE SEVERANCE PLAN-INSURANCE BENEFIT

Examination of the severance fund's procedures showed that workers enrolled at the start of the fund qualified immediately for the full payment of whatever money had been contributed on their behalf by management. Noninception members qualified gradually over a five-year period.37

Nearly half-49.98 percent-of the employer contributions was used to buy life insurance for the members of Local 295.

The life insurance purchased for each member was ordinary levelpremium whole life insurance. It was provided in separate individual policies-not group.38 The individual policy feature of the insurance program was to be one of the most controversial aspects of the plan. Considerable criticism was lodged against Ostrer, the architect of the system, for not having selected the more conventional group plan coverage. This criticism is noted in some detail later in this staff study.

Commissions for the agent were quite high. The total agent commissions were set at 50 percent for the first year; 25 percent for the second, third and fourth years, respectively; and 15 percent each for the fifth through 10th years. Critics of the Ostrer plan also raised questions about the propriety of the commission rates as will be noted later in this study.

39

Insurance coverage for workers was determined by a formula. The first step was to multiply the employer's weekly contribution by 50. Next, that figure was multiplied by the number of years between the insured members' age and age 65.

For example, if a 40 year old man died in the second year of the plan when employer contributions were $30 per week, the dead man's policy was worth $37,500. By the same formula and with the same circumstances, a 25 year old man would have $60,000 coverage while a 56 year old man would have $15,000 coverage.

40

Unfortunately, however, the dead man's widow could not collect the full face value of her husband's policy unless she waited 10 years to do it. That was another feature of Louis Ostrer's concept of life insurance which was a target of criticism.

This Ostrer innovation began on the premise that the beneficiary of all the insurance policies was not the families of the deceased but the severance fund itself.

Accordingly, after the death of the insured, the dead man's own named beneficiary did not receive cash from the trust fund according to the face value of the policy.

37 U.S. General Accounting Office study of Local 295 severance trust fund, dated May 21, 1973. (See Appendix V.)

38 Ibid.

39 Report on Local 295 severance trust fund, dated June 25, 1971, prepared for the Senate Permanent Subcommittee on Investigations by Lawrence M. Hyman, Supervising Examiner, New York State Insurance Department; George Perla; Senior Examiner, New York State Insurance Department; and Herbert L. Feay, Assistant Director and Actuary, U.S. General Accounting Office. (See Appendix VI.)

40 Ibid.