Automotive Industries Pension Plan, Alameda, Calif., was denied permission to cut benefits for participants, including retirees, as part of a proposed rescue plan submitted to the Treasury Department.
The Multiemployer Pension Reform Act of 2014 allows benefit reductions, called suspensions, if they are likely to keep a pension fund solvent. The application to reduce benefits, submitted Sept. 27, projected a 50.3% chance of solvency with the cuts.
In a letter Tuesday to the pension fund announcing the denial, Treasury benefits tax counsel Robert Neis said officials there “concluded that several of the key actuarial assumptions used for the cash flow projections in the application are not reasonable,” specifically the mortality rate assumption, the assumed rate that married participants will elect a joint and survivor benefit, and assumptions of when terminated vested participants would begin receiving benefits.
Mr. Neis also wrote that “a number of other actuarial assumptions and methods” raised concerns, but were not the reason for the denial. “Treasury remains willing to discuss these issues with (the plan) further,” he said.
Pension fund assets as of Jan. 1 were $1.19 billion and liabilities were $1.96 billion, for a funded status of 60.7%. The proposed benefit reductions would have started July 1, 2017.
The fund is projected to be insolvent by 2030 without the suspensions. Over the past 10 years, the number of active participants has declined and there are now 5.5 non-active participants for each active participant, according to the application. Under a rehabilitation plan in place since 2009, trustees have made the maximum benefit reductions allowed by law before 2014, including removal of all early retirement subsidies, joint and survivor subsidies, disability pensions and other options.
Of the 17 MPRA applications submitted to the Treasury Department, five have been denied and six are still in review, which includes some initial applications that were withdrawn and resubmitted.
Only one application, by the $91.9 million Iron Workers Local 17 Pension Fund, Cleveland, has been approved. It was approved Dec. 16, and called for reducing benefits “indefinitely.”