An application by Teamsters Local 807 Labor-Management Pension Fund to suspend benefits to prevent insolvency is expected to be denied, according to a letter sent by trustees to Treasury Secretary Steven Mnuchin, asking him to reverse the impending decision.
According to the letter, the application is being rejected because the Treasury Department has determined "that the investment return assumption used to demonstrate that the plan will remain solvent is unreasonable." However, the trustees contend that the assumption used by the plan through its actuarial consultant, Segal, follows Treasury's own guidelines.
"It was startling to us that they had a problem with us," said Jason Russell, senior vice president and consulting actuary at Segal, in a phone interview. "There's guidance out there that describes the process in which they calculate the actuarial assumption. We firmly believe that we followed the guidance that was put out there."
In a separate letter sent to Treasury, Mr. Russell wrote that the return assumption used in the application is not only "reasonable," but that it also "conforms to all statutory requirements and regulatory guidance" and "adheres to applicable Actuarial Standards of Practice."
Danielle Norris, Multiemployer Pension Plan Application director at Treasury, did not immediately respond to a request for comment.
The plan is facing insolvency due in large part to its active participant base shrinking to roughly half its size over the past 20 years, leading to negative cash flow, said Alan Sofge, a senior vice president and consultant at Segal in the same phone interview. The recessions that followed the market crashes in 2002 and 2008 also led to significant asset losses.
As of Aug. 1, 2019, it had $136.5 million in assets and was 41.3% funded.
Mr. Sofge noted that the pension fund is projected to be insolvent within 10 years.
The application, submitted Dec. 30, proposes an average benefit suspension of 21% for all active employees, retirees under the age of 80 and terminated vested participants. Retirees over the age of 80 and disabled pensioners will not see a suspension of benefits. If approved, the benefit reductions would go into effect Nov. 1.
This is the second application to preserve the pension plan filed with Treasury. The first one was filed in June 2018 but was withdrawn after the federal shutdown prevented trustees from providing the additional information the department needed for approving the application.
"This is the second attempt coming up," Mr. Sofge said. "If the application is denied, we've hit a brick wall."