Treasury's Ruling Raises Question of Rescue Plan Process

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By David B. Brandolph

May 11 — The Treasury Department's rejection of the Central States pension fund's rescue proposal isn't likely to deter other financially troubled multiemployer plans from filing rescue applications, pension industry professionals said.

But before filing that petition, fund executives or their advisers “might inquire about the nature of the process, and ask agency officials whether they are willing to work with the fund to help it satisfy the department's requirements,” attorney Benjamin Eisner, a shareholder at Spear Wilderman PC in Philadelphia, told Bloomberg BNA May 11.

By doing so, funds will get an idea of what they're getting into and how to prepare, he said.

The department May 6 rejected the Central States, Southeast and Southwest Areas Pension Fund's petition to cut retirees' benefits, which the plan submitted in hope of avoiding projected insolvency. The fund's executive director, Thomas C. Nyhan, said the pension would have altered parts of its application had it known about the department's objections before the agency announced its decision (90 PBD, 5/10/16).

Such comments from Nyhan suggest that the fund “faced a process that possibly was less collaborative than it expected,” Eisner said.

Most often when funds file “more routine” applications to a government agency, such as under the Internal Revenue Service's Voluntary Correction Program, the fund and agency engage in a back-and-forth exchange of information, Eisner said. Through this collaborative exchange, the fund learns about the issues the agency views as troublesome. By the time the fund completes the application process, it's usually reasonably confident that it has addressed the agency's concerns and the filing will be approved, he said.

In a May 11 e-mail, Nyhan told Bloomberg BNA that although the fund's dealings with Treasury during the review wasn't “an adversarial process,” it wasn't “collaborative, either.” He said that despite meeting with Treasury three times and providing the department and the Pension Benefit Guaranty Corporation with “massive amounts of actuarial data over the many months of their deliberations,” Treasury never told the fund about the department's concerns before the decision.

The Treasury also failed to inform the fund of changes in final regulations pertaining to short-term investment expectations that were issued only days before the department's ruling, he said. Those rules were issued April 26 (81 PBD, 4/27/16).

“These 11th hour changes were in our view inappropriate and, in effect, doomed the application,” Nyhan said.

Lawmakers passed the Multiemployer Pension Reform Act in late 2014 to allow multiemployer funds facing insolvency to propose benefit cuts. The law, also known as the Kline-Miller Act, lays out standards such proposals must meet, such as that they be based on reasonable investment assumptions, that benefit cuts be distributed equitably and that notices to plan participants be easy to understand.

Impact of Treasury Ruling

Prior to Treasury's ruling on Central States' petition, only four other funds were known to have filed a rescue plan petition. It is widely thought that a number of other plans have been waiting for the department's ruling on Central States' application before filing their own petition.

“The department's rejection of Central States' petition isn't likely to stop other multiemployer plans from filing their own rescue plan applications,” John Lowell, pension consultant for October Three in Atlanta, told Bloomberg BNA May 10. However, he said that those filing will be more careful to adhere to the MPRA's requirements that the application convincingly show that the fund's proposal will likely avert the fund's insolvency within the statute's time frame and that the proposed cuts will be equitably distributed.

Plan trustees will now have the benefit of the department's analysis of Central States' petition in designing their applications, he said.

Eisner said he suspects that most funds that were intent on filing with the department will decide to file, but that fund officials will need to “think through that decision more carefully in light of the Central States decision.” Funds don't want to invest the time and money required to make such a filing if it isn't likely to be approved, he said.

The ideal fund candidates for being approved are ones with more than 10,000 participants that are also among the better funded of those that have indicated to the PBGC that they are in critical and declining status, Lowell said.

The best candidates will also have lower ratios of inactive participants to active participants, he said. This ratio is important, Lowell said, to assure that there is an adequate base of contributions entering the fund to support those who are in pay status—already receiving retirement benefits.

To contact the reporter on this story: David B. Brandolph in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at