Political realities dictate that the Central States Pension Fund's proposed rescue plan is the only realistic way to keep the multiemployer fund afloat, the fund's executive director told Bloomberg BNA.
Thomas Nyhan, executive director and general counsel of the Central States, Southeast and Southwest Areas Pension Fund, one of the largest U.S. multiemployer funds, said consumer groups, such as the Pension Rights Center, have fed retirees and participants with the false hope that Congress will allocate sufficient funds to preserve their full pensions.
In reality, there isn't bipartisan support for any legislation, no matter how well intended, that will do that, Nyhan said Oct. 7. Instead there's a “small window of opportunity” to implement benefit cuts before it's too late to keep the fund from going insolvent, with all participants and retirees losing their benefits as a result, he said. No one on the fund's board of trustees wanted to cut the pensions of retirees—“who all deserve to have the benefits they earned,” Nyhan said. But board members didn't have a choice, he said.
On Sept. 25, the fund filed a proposed pension rescue plan with the Treasury Department seeking to reduce benefits, ostensibly to save the fund from collapsing. The fund alerted plan participants Oct. 1 on its website that they would soon receive letters describing how the proposed reductions would affect their benefits.
In a hearing last month, union representatives, pension advocates and people facing benefit cuts told representatives of the Internal Revenue Service and Treasury that they should use the “maximum limits” of their authority to write final rules on suspending multiemployer plan benefits under the Multiemployer Pension Reform Act of 2014 that follow the law but are as fair as possible to workers and retirees.
In June, Sen. Bernie Sanders (I-Vt.) and Rep. Marcy Kaptur (D-Ohio) announced legislation to repeal the MPRA's cutback provisions.
Central States is a member of the National Coordinating Committee for Multiemployer Plans, which was instrumental in pushing for passage of the MPRA.
Rescue: ‘Needed and Fair.’
In announcing the rescue plan, Nyhan said in a statement that the rescue plan was needed because the fund has been left severely underfunded by trucking industry deregulation, declining union membership and economic recession. As a result, hundreds of the fund's contributing employers have closed their doors or gone bankrupt, he said. Currently, Nyhan said the fund is annually paying out $2 billion more than it's taking in through employer contributions and that “there is simply no way to make up for the lost employer contributions.”
In describing why a “realistic rescue plan is needed now,” Nyhan said that the “longer we wait to act, the larger that benefit reductions will have to be.”
“And if we wait too long, the Central States Pension Fund will run out of money and won't be able to be saved,” he said.
Nyhan said that while painful, the rescue plan is the “only realistic way possible to save the Fund from financial failure.” One of the most severely affected group of participants under the plan are “orphans”—participants and their beneficiaries whose employers failed to pay their full employer pension withdrawal obligations. According to Nyhan, the MPRA mandates that maximum benefit reductions—to 110 percent of the Pension Benefit Guaranty Corporation guaranteed benefit—must be implemented first with these orphans.
Nyhan said during the interview that Treasury has up to 225 days to review the rescue plan, and if approved, all participants will be given a chance to vote on the proposal. However, under the law, even if the plan is rejected by its participants, Treasury can override the vote and order that the rescue plan be implemented or modified. If the plan is approved by both the Treasury and the fund's participants in a timely fashion, the plan could be in place by July 1, 2016, Nyhan said.
The nine-month process of designing the rescue plan was daunting, complicated and arduous, Nyhan said in the interview. The plan, if approved, will ensure that the fund remains solvent for at least 30 years, he said. The fund's retiree representative, Susan Mauren, herself a retiree of the fund, and her team of attorneys, actuaries and other professionals participated in every step of the process to ensure that the outcome was fair and equitable to all those affected, he said.
Excerpted from a story that ran in Pension & Benefits Daily (10/8/2015).
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