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A multiemployer pension plan that gained Treasury Department approval for a petition to reduce participants’ benefits did so by scanning a road map gleaned from a department rejection letter. This road map may now pave the way for other plans seeking such approval.
When the Treasury Department on Dec. 16 approved the Cleveland-based Iron Workers Local 17 Pension Fund’s benefits suspension petition, it marked the first time the department had approved an application under the Multiemployer Pension Reform Act of 2014. That law was designed to help plans avoid insolvency. Four prior MPRA petitions were rejected by Treasury.
The approved petition, which will be voted on by plan participants in January, has raised concerns among pension consumer groups and retirees that the floodgates will now open for plans to file applications under the MPRA, also known as the Kline-Miller Act.
Five plans are currently under review and dozens of others are eligible to file under the MPRA, which retirees have vilified as providing an unfair mechanism permitting plans to seek Treasury’s approval to severely cut their previously untouchable accrued and promised benefits. Proponents of the law say the cuts are far preferable to letting a fund go insolvent. This would result in participants faring much worse, they say.
Although Treasury’s notice letter to the fund doesn’t say why the department approved the application, retirees’ fears of more filings and approvals could be well founded. That’s because many believe that Treasury, through its rulemaking and past guidance, has provided a road map for plans to follow.
“Stakeholders are learning the rules based on the regulations and soft guidance provided in earlier decision letters. In cases where that learning is reflected in an application, more will be approved assuming Treasury’s process is consistent—which I expect it will be,” Dominic DeMatties, partner with Alston & Bird in Washington, told Bloomberg BNA following Treasury’s approval of the local plan’s petition.
DeMatties previously served as an attorney-adviser in the Office of the Benefits Tax Counsel at Treasury.
To get the local’s plan in position to garner Treasury’s approval, the plan’s trustees and advisers closely examined the department’s May 6 rejection notice sent to the first plan to receive a rejection—the Central States, Southeast and Southwest Areas Pension Fund.
The Iron Workers local’s evaluation of the Central States fund’s rejection notice convinced the local plan’s trustees to withdraw the rescue petition the plan had filed on Dec. 23, 2015, and resubmit a revised application on July 29, 2016, designed to meet Treasury’s requirements.
In resubmitting the petition, the plan’s trustees altered the plan’s prior application in an attempt to avoid the faults the department identified in rejecting Central States’ proposal, Teresa R. Pofok, counsel for the Iron Workers fund, told Bloomberg BNA at the time of the refiling. Pofok is with Goldstein Gragel LLC in Cleveland.
The new petition also took into account the department’s final rules issued in April detailing benefit suspensions and the process for voting on proposed suspensions under the MPRA.
The department rejected Central States’ petition after finding that its proposal didn’t show that the fund would avoid projected insolvency. More specifically, Treasury found that the fund’s 7.5 percent annual investment return assumptions were unreasonable.
The Iron Workers fund changed its investment return assumptions in response to the department’s denial of Central States’ petition. It did so by altering the local plan’s original flat annual 6.5 percent investment return assumption and replacing it with year-by-year return assumptions that were lower in early years and gradually increased in later years.
The fund also informed its participants of the cuts using the department’s model notice.
In a Dec. 20 statement, the Pension Rights Center, a consumer advocate in Washington, said that it had told Treasury in comments that the Local 17 plan’s cuts weren’t “distributed equitably” and wouldn’t “ensure that the plan would meet the law’s requirement that the plan remain solvent for 30 years.” The PRC said that Treasury “appears to have rejected these arguments.”
If the Local 17’s proposal is approved, the benefit cuts would affect about 2,000 workers, retirees and spouses.
According to the fund’s Form 5500 filed with the Labor Department, the fund at the end of its 2014 plan year had 2,042 participants, of which 632 were active employees.
Under the voting process prescribed by the MPRA, the petition will be considered approved unless a majority of all participants vote to reject it. Any participants who fail to vote will be deemed to have voted in favor of the proposal.
Because of the small size of the plan, Treasury doesn’t have the authority under the MPRA to overturn a rejection vote.
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