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By Sean Forbes
Members of Iron Workers Local 17 in Cleveland have approved cuts to their pension benefits in an effort to keep their pension plan from going insolvent, and it’s the fund’s retirees who are going to take the hardest hit.
The Treasury Department Jan. 27 informed the plan’s trustees of the voting results. It’s the first time a multiemployer pension fund has conducted such a vote and now the first time a pension fund has been able to make benefit reductions under the Multiemployer Pension Reform Act.
Of the nearly 2,000 plan participants, fewer than half submitted a vote. That’s significant because under the MPRA, not casting a vote is the same as voting to approve the pension cuts. Of the 936 members who did vote, two-thirds voted in favor of the cuts.
In December, the fund became the first to get Treasury’s approval to proceed with the process of collecting votes on its proposal to cut benefits. All other pension funds that have asked for similar measures have been rejected by Treasury.
Prior to the MPRA, pension plans were unable to voluntarily cut benefits under the Employee Retirement Income Security Act.
Benefit cuts, under the MPRA, are allowed only if the plan trustees determine that all reasonable measures to avoid insolvency have been and continue to be taken and that the suspension would allow the plan to avoid insolvency, assuming the suspension of benefits continues until it expires by its own terms or, if no such expiration is set, indefinitely. Cuts can be made to no more than 110 percent of the Pension Benefit Guaranty Corporation’s limits for multiemployer plans.
Opponents of the MPRA’s benefits reduction provisions are concerned that other funds at risk of collapse will follow the Iron Workers’ path, rather than seek other methods to prevent insolvency.
“The retirees who are going to be affected by this are devastated by these cuts,” Joellen Leavelle, communications and outreach director for the Washington-based Pension Rights Center, told Bloomberg BNA. That the union was able to pass the measure, and that the Treasury Department approved it, “shows that we have to find a solution for underfunded plans,” she said.
The Iron Workers plan is the first to be approved, but won’t likely be the last, Joshua Gotbaum, a guest scholar at the Brookings Institution in Washington, told Bloomberg BNA. “This is of course a sad day, but it is much better than what would happen if the plan collapsed entirely,” he said. Gotbaum is the former director of the PBGC, which is the federal government’s insurance backstop for private pension plans.
“Other plans are going to do it when they think it’s in their interest and participants agree,” Gotbaum said. “Faced with plan collapse, a decision by a plan and its participants democratically to survive should not be criticized. It should be supported,”
Four more applications are under review at Treasury, for the Automotive Industries Pension Fund, Bricklayers and Allied Craftworkers Local 5 Pension Plan, New York State Teamsters Conference Pension & Retirement Fund and United Furniture Workers Pension Fund A.
Nearly 70 other plans are in “critical and declining” status and therefore eligible to make cuts, according to the PRC.
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Text of Treasury's letter is at http://src.bna.com/lL3.
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