The result of the first test of a new multiemployer pension reform law has left trustees of the Central States Teamsters pension fund reeling, other troubled multiemployer pension fund officials uncertain about their options and some politicians feeling the pressure to step in.
The Treasury Department on May 6 denied the benefit suspension application of the $17.8 billion Teamsters Central States, Southeast & Southwest Areas Pension Fund, Rosemont, Ill., citing three unmet criteria of the Kline-Miller Multiemployer Pension Reform Act of 2014, which created the suspension process and put Treasury in charge.
“If there's one good thing that has come out of this, it is that Congress now knows they have to go back and roll up their sleeves. It really is going to define this country,” said Teamsters International Vice President John Murphy in an interview.
Treasury Special Master Kenneth Feinberg, in a press call, said, “We found there were fatal flaws in this submission.”
Treasury officials found that the Teamsters' suspension plan did not distribute benefit cuts equitably and did not provide participants with easily understood notices, but above all, it would not avoid insolvency.
The top reason for that, Mr. Feinberg said in a letter to the pension fund's board of trustees, were the actuarial assumptions used to support the pension fund's claim. The plan's 7.5% rate of investment return and entry age assumptions were too optimistic for a plan that at the time of its September 2015 application was 53% funded, with $35 billion in liabilities and likely insolvency by 2026, Mr. Feinberg said in the letter. For a plan in that shape, he wrote, using a common return assumption of 7.5% over a 50-year time horizon didn't fly because it failed to give enough weight to near-term expected rates of return that would have led to “materially different results,” or to negative cash flow problems likely to reduce asset levels even further, among other reasons.
The demographic assumptions, Treasury officials said, should likewise have been refined to reflect the plan's cash flow and current data.
That could have a chilling effect on other distressed plans considering MPRA.