American Federation of Musicians and Employers' Pension Fund's application to reduce benefits to prevent insolvency was denied, according to an Aug. 11 letter sent by Treasury Department official Danielle Norris.
Ms. Norris is director of the program overseeing applications under the Multiemployer Pension Reform Act to reduce, or suspend, benefits if it will prevent insolvency. In her letter, Ms. Norris said the musicians union's application was denied because it does not meet the requirement that the benefit suspensions would be enough to avoid insolvency.
"Specifically, Treasury has determined that the mortality rate assumption and the new entrant assumption are not reasonable under the standards in the regulations," the letter said.
Pension fund trustees were prepared for the denial, after being told that Treasury officials recommended it after concluding that the mortality and new entrant assumptions were not reasonable. The trustees said in a letter to Treasury Secretary Steven Mnuchin that even using Treasury staff assumptions, the proposed reductions would satisfy the MPRA. Without the approval, many plan participants "would see drastic cuts" if the plan is transferred to the Pension Benefit Guaranty Corp., with reduced guarantee levels, the trustees said.
The application, submitted Dec. 30, proposed that about 53% of participants would see no benefit reduction, and 45% would have benefits reduced up to 19%. If approved, the benefit reductions would have gone into effect Jan. 1.
The pension fund is projected to be insolvent within 20 years.
As of March 31, 2019, it had $1.8 billion in assets and about $3 billion in liabilities, with a funding shortfall of $1.2 billion and a funding ratio of 60%.
