Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
The PBGC’s conditional approval of a Nashville, Tenn., pension plan’s request to be partitioned may encourage trustees of other financially troubled plans covering union workers to use such a tool to help avoid insolvency.
But the only pension plans that are likely to benefit from partition are the plans that owe lower benefit payments and are also close to insolvency.
A partition enables financially troubled plans to dump a portion of their liabilities on the Pension Benefit Guaranty Corporation, which backstops corporate pensions.
That’s something that “plans have wanted to do for at least the last 30 years,” Terrence Deneen, the PBGC’s former chief of insurance program operations, told Bloomberg BNA July 25.
“The PBGC is likely to see more interest in partitions among plans” because of the agency’s recent decision to conditionally approve the United Furniture Workers Pension Fund A’s request to be partitioned, Joshua Shapiro, senior actuarial adviser at Groom Law Group in Washington, told Bloomberg BNA July 25. That approval was granted at the same time the Treasury Department approved the plan’s petition under the Multiemployer Pension Reform Act of 2014 to suspend participant benefits to avoid insolvency.
However, it’s unlikely that many of the approximately 100 other financially plagued plans that could consider filing an MPRA application will ultimately seek a partition and have that request approved. That’s because partitions will be seen as most politically viable by plans that already pay lower benefits to their participants and therefore won’t need to justify massive cuts.
“Trustees of plans with relatively high benefits, such as many Teamsters plans, may be reluctant to apply for a partition because their retirees would suffer a drastic reduction in their pensions if reduced to a benefit equal to 110 percent of the very modest PBGC guarantee,” Deneen said.
Christian Benjaminson, the enrolled actuary for the Furniture Workers plan, agreed. “For plans with lower benefits, a benefit suspension alone is less likely to save the plan,” he told Bloomberg BNA July 25. More of these plans that owe less in benefits will seek partitions, said Benjaminson, who is a principal consulting actuary at Cheiron in suburban Washington.
Plans that aren’t projected to be insolvent for a number of years are also less likely to seek a partition. “Partitions are only necessary when benefit suspensions under the MPRA can’t on their own get the job done,” Shapiro said. The further a plan is from insolvency, the more likely a MPRA benefit suspension itself will be sufficient to avoid a plan’s insolvency, he said.
In fact, the PBGC’s own projections indicate that only 10 percent of the plans currently in critical and declining status will ultimately have a partition approved as part of benefit suspensions granted by Treasury.
Under the MPRA, also known as the Kline-Miller Act, a partitioned plan is divided into two pieces—the original ongoing plan and a new successor plan. With some exceptions, participants whose liabilities are jettisoned to the successor plan are paid a benefit equal to 110 percent of the minimum guaranteed by the PBGC. The agency pays the plan 100 percent of that guarantee and the original plan antes up the additional 10 percent. The plan continues to ensure that participants in the original plan receive benefits equal to 110 percent of the PBGC’s guarantee.
The expected result is a win-win for the plan and the PBGC. That’s because the plan remains solvent while offloading part of its liabilities to the PBGC. The agency benefits because it avoids having to bear the full brunt of providing benefits for a fully collapsed plan.
To receive partition assistance from the PBGC, a plan must take all reasonable measures to avoid insolvency, including the filing of a benefit suspension request with Treasury. The partition must also reduce the PBGC’s long-term loss, and the agency must certify that a partition doesn’t impair the agency’s ability to meet its obligations to provide financial assistance to other plans.
The Furniture Workers plan, which is in the process of submitting to a membership vote its proposal to cut participant benefits and partition the plan, is a good example of a plan that owes lower benefits and is nearing insolvency—projected to be in 2021. Under the proposed partition, participants in the successor plan who are eligible for cuts under the MPRA would have their benefits on average slashed from about $500 per month to about $440 per month to reach 110 percent of the PBGC’s minimum benefit guarantee.
Among the 15 plans that have filed MPRA applications with Treasury, three plans, in addition to the Furniture Workers plan, also filed a partition request to the PBGC. Both Treasury and the PBGC rejected the petitions filed by the Road Carriers Local 707 Pension Fund. The Bricklayers and Allied Craftworkers Local 5 Pension Plan has withdrawn its applications.
However, the applications from the Local 805 International Brotherhood of Teamsters Pension & Retirement Plan remain under review.
To contact the reporter on this story: David B. Brandolph in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jo-el J. Meyer at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)