Congressional negotiations over a budget bill late last year introduced a landmark change to ERISA on the law's 40th anniversary: To preserve their multiemployer defined benefit plans, trustees and participants can now voluntarily decide whether to reduce benefits instead of waiting for plan insolvency.
The change is likely to have a major impact on the Pension Benefit Guaranty Corporation and multiemployer plans in 2015.
Some plans will be moving as quickly as possible now that they have the legal tools to do so, such as the financially troubled Central States Pension Fund, although the fund, one of the largest in the nation, said any changes likely wouldn't take effect for at least a year.
The multiemployer plan provisions were included in the Multiemployer Pension Reform Act of 2014, which was included in the budget bill known as “cromnibus” (a portmanteau of continuing resolution and omnibus).
The Pension Benefit Guaranty Corporation will be releasing guidance in the first quarter on the new law, but the agency has a number of other things on its slate for 2015 as well, agency officials told Bloomberg BNA.
The PBGC also will be revisiting its guidance on:
The officials spoke on various agency-related issues and aspects of its agenda for 2015 on the condition they not be named.
‘An Uncomfortable Compromise.'
Congress's adoption of the revision of ERISA's anti-cutback provisions was “an uncomfortable compromise, like most compromises are,” that will protect pensioners in plans that are at risk of insolvency from seeing their benefits drop all the way to the PBGC's guaranteed levels, one of the agency officials said.
For 2015, the maximum annual guarantee level for a multiemployer plan retiree with 30 years of service is $12,870, the same limit that has been in place since 2001.
Prior to the congressional revision of the anti-cutback rule under tax code Section 411(d)(6), a plan couldn't be amended to retroactively eliminate or reduce a pension benefit that had already accrued by the date of the adoption of the amendment.
Under the revised provisions, trustees of seriously endangered plans have the discretion to drop benefits to as low as 110 percent of the PBGC's maximum guaranteed benefit level to protect plan solvency, provided plan participants, contributing sponsors and the Treasury Department all agree. Reductions don't apply to participants who are age 80 and above, and are phased out for participants ages 75 to 80. In addition, plans can't suspend disability benefits. Benefit reductions also must be equitably distributed across the participant population.
Benefit reductions are allowed only if the plan trustees determine that all reasonable measures to avoid insolvency have been and continue to be taken, but the plan is still considered headed for insolvency and suspensions would allow the plan to avoid insolvency indefinitely.
In testimony at a hearing held by a House Education and the Workforce Committee panel in October 2013, Thomas C. Nyhan, Central States' executive director and general counsel, said that the fund was facing insolvency within 10 to 15 years if it couldn't substantially reduce its liability with a large influx of assets.
Using the market value of assets at the time, Central States was funded at about 53 percent of its funding obligations, Nyhan said.
Other multiemployer plans will be joining Central States in trying to reduce benefits, Joshua Gotbaum, a guest scholar in the economic studies program at the Brookings Institution in Washington and director of the PBGC from 2010 to August 2014, said in an interview.
Central States is a member of the National Coordinating Committee for Multiemployer Plans, a coalition of unions and plan sponsors that lobbied Congress for passage of a package of proposals to revamp the multiemployer system laid out in the 2013 report “Solutions Not Bailouts”(40 BPR 443, 2/26/13). The Multiemployer Pension Reform Act largely reflects the NCCMP's recommendations on revising the anti-cutback provisions.
Central States was the most aggressive in pushing for an ability to save itself, but other plans that were unwilling to admit their financial condition will now be coming forward and requesting to use the new legal tools, Gotbaum said.
“Will Central States be there earlier and on a more organized basis because they've been thinking about this for years? Of course they will. But are they going to be alone? Absolutely not,” he said.
The cutback provisions would apply only to the most at-risk plans—5 percent to 10 percent of the multiemployer plan universe—but because of a “drumbeat out there that everybody will lose benefits,” the NCCMP will be trying to make sure that plan participants have nothing to fear, said Randy G. DeFrehn, executive director of the NCCMP in Washington.
Excerpted from a story that ran in Pension & Benefits Daily (01/15/2015).
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