The first multiemployer pension plan to win approval to reduce benefits offers lessons for other struggling plans facing insolvency.
After rejecting four other multiemployer pension funds' proposals, the Treasury Department on Dec.16 approved the rescue request of the Iron Workers Local 17 Pension Fund, Cleveland.
In Local 17's favor were the small size of the fund (about $90 million) and a revision earlier this year of its application that lowered expectations about investment returns, among other things.
Five more multiemployer plans are waiting to hear if their applications have been approved, and that has retiree advocates worried. “We are concerned the floodgates will open now that the Treasury Department has given the green light to Local 17,” said Karen Ferguson, director of the Pension Rights Center in Washington. The advocacy group notes that more than 60 additional multiemployer plans have notified the Department of Labor of their “critical and declining” status, which makes them eligible to at least consider applying for benefit reductions under the Kline-Miller Multiemployer Pension Reform Act of 2014, although not all will meet the criteria.
The MPRA allows trustees of deeply underfunded pension plans to reduce or suspend benefits — even for retirees — if it gives the plan a better-than-50% chance of staying solvent for 15 years, or in the case of funds with more retirees than active participants, 20 years.
The cuts can be no lower than 110% of the Pension Benefit Guaranty Corp.'s guarantee, which is less than $13,000 per retiree per year for someone with 30 years of service. Disabled or older retirees have further protections.
The law also requires plan participants to vote on the benefit reductions. But for large plans, Treasury officials must override a participant vote to reject cuts if the plans present a liability of $1 billion or more to the PBGC.