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Nearly 2,000 Iron Workers in the Cleveland area will be voting by Jan. 20 to accept or reject cuts to their pensions, and the vote could pit active employees against retirees.
It will be the first time a multiemployer pension fund will face such a vote, and the outcome could open the floodgates for dozens of other plans to take similar measures.
Voting by participants in the Cleveland-based Iron Workers Local 17 Pension Fund is currently underway via a unique mail-in ballot process. That process, combined with the structure of the cuts, appears to have stacked the odds toward approval.
“We are very concerned that the Local 17 pension plan trustees intentionally and cynically designed an application to divide and conquer,” Karen Friedman, executive vice president of the consumer advocate Pension Rights Center in Washington, told Bloomberg BNA.
“They cut some workers and retirees minimally or not at all and then cut a few hundred retirees quite significantly to ensure that many people will vote in favor of cuts, essentially throwing their fellow retirees under the bus,” Friedman said.
Representatives of the fund denied that the cuts were designed to divide its population.
It’s not the plan trustees’ “goal to pit the active participants against the retirees,” Teresa R. Pofok, counsel for the fund, told Bloomberg BNA. Nor is it their goal to pit the exempt participants, which include those receiving disability pensions and retirees age 80 and over, against the retirees who weren’t protected from cuts under federal law, said Pofok, who is with Goldstein Gragel LLC in Cleveland.
The benefit reductions adopted by the trustees wouldn’t just impact the retirees, they would also apply to many active participants, Pofok said.
In most voting scenarios, only those who vote get counted. That’s not so in rescue proposal voting.
The voting process instead deems rescue proposals approved unless rejected by a majority of all plan participants. Iron Workers Local 17 participants who don’t vote or fail to return their ballots by Jan. 20 will be counted in the yes column. As a result, it’s possible that a majority of those submitting ballots will vote to reject but the proposal will be implemented anyway because the vote to reject isn’t a majority of all participants.
Pending legislation proposed by Sen. Rob Portman (R-Ohio) would level the voting process playing field. The bill, however, has yet to make significant headway in Congress.
The proposal’s most severe benefit reductions would land on the plan’s younger retirees—those under age 80—bestowing perhaps an even greater advantage for those seeking approval of the cuts.
About 18 percent of the plan’s population face having their benefits slashed by 30 percent to 60 percent. This group is made up mostly of these younger retirees.
A much larger group of participants, however, would see little or no cuts under the proposal and are unlikely to vote to reject. In fact, 52 percent of participants wouldn’t face any reductions. That's because many are more recently employed active employees or statutorily exempt from the cuts.
The stage for this vote was set when the Treasury Department in December approved the Local 17 fund’s petition to cut participant benefits under a controversial federal law designed to help plans avoid insolvency.
That law is the Multiemployer Pension Reform Act of 2014, also known as the Kline-Miller Act. Under the MPRA, a plan applying to suspend or cut benefits is required to show that its proposal will in fact prevent the plan’s insolvency and will be allocated equitably.
There’s some concern that retirees have been underrepresented in the process.
Unlike younger and active workers, retirees can’t return to work due to age and poor health and don’t have time to prepare for these cuts by increasing their savings or adjusting their lifestyle, Karen Ferguson, PRC’s director, told Bloomberg BNA.
“Employer trustees represent the employers and union trustees represent active employees, and both have institutional interests in preserving the plan,” Ferguson said. “No one represents the retirees whose benefits are being cut 30 to 60 percent,” she said.
Amid its claims of unfairness, the PRC also says benefit cuts aren’t the only or best solution. It’s therefore urging participants to reject the proposal.
Prospects are good for a legislative solution that will resolve the multiemployer plan crisis long before the plan’s 2024 projected insolvency, Ferguson said.
An appeal to both union solidarity and individual self-interest may also be in order, even for those who think they will lose little if the proposal is implemented.
If it turns out that the plan still ends up heading toward insolvency despite the benefit cuts, participants who are unscathed by the current proposal may be next in line for severe cuts, Ferguson warned.
Proponents of the cuts say rejection would have a devastating impact on all participants and beneficiaries, particularly participants over age 80 and on disability pensions who are the least able to adjust.
If the proposal is rejected, the resulting reductions will be much greater and with the uncertainty surrounding the Pension Benefit Guaranty Corporation’s own solvency, “pension benefits could actually be reduced to zero,” Pofok said.
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Bloomberg BNA's list of 8 things to know about MPRA rescue petitions can be found at http://src.bna.com/k9l.
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