Multiemployer pension plan sponsors could cut billions from their pension obligations if they are able to take advantage of the Multiemployer Pension Reform Act of 2014, Moody’s Investors Service said Monday.
The law’s restructuring provisions allow trustees of deeply underfunded pension funds that would be insolvent within 15 years to reduce benefits, even for current retirees, after they have tried all other means.
On Sept. 25, the $17.8 billion Teamsters Central States, Southeast & Southwest Areas Pension Fund, Rosemont, Ill., became the first multiemployer plan to ask the Treasury Department for permission to cut benefits as part of a proposed rescue plan. If approved, Central States’ pension benefit obligations would drop by 22.6%, or $11 billion, Moody’s estimates.
“We believe other plans will file similar applications,” which if approved, would be a credit positive for plan sponsors, said author Wesley Smyth, vice president and senior accounting analyst for Moody’s, in the report.
Moody’s also estimates that the 124 largest U.S. multiemployer plans were collectively underfunded by nearly $318 billion at the end of 2013, with 12 plans’ funding levels equal to or weaker than Central States, which was 39% funded at the end of 2013. The lowest funding levels at the end of 2013 were the $718 million Carpenters Pension Trust Fund in Detroit at 23.3%, the $620 million FELRA and UFCW Pension Plan in Sparks, Md., at 25.6%, and the $1.5 billion New York State Teamsters Conference Pension & Retirement Fund at 28.9%.
Applications for benefit reductions aren’t likely until mid-2016 because the Treasury Department has not finalized the rules, Moody’s said. “We believe other plans will file similar applications, which will reduce PBOs by billions more.”