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Nov. 23 — Multiemployer pension plans seeking government approval to suspend benefits have a handy tool that could help them get that approval—the government’s rejection letters shooting down every proposed cut so far.
It’s been two nearly two years since Congress sought to address the multiemployer plan crisis by passing the Multiemployer Pension Reform Act, and to date, no pension plan has successfully navigated the Treasury Department’s approval process.
Although the decision letters address specific plan applications, they communicate what Treasury wants to see before it will sign off on cuts, Dominic DeMatties, partner with Alston & Bird in Washington, told Bloomberg BNA.
DeMatties, who previously served as an attorney-adviser in the Office of the Benefits Tax Counsel at Treasury, said that plans considering their own rescue petition should be paying close attention to Treasury’s decision letters, which he said amounted to “soft guidance.”
John Lowell, pension consultant for October Three in Atlanta, told Bloomberg BNA that the Treasury’s decision letter rejecting the Central States, Southeast and Southwest Areas Pension Fund’s rescue proposal represented on its own a road map for other plans to follow.
Multiemployer plan petitions to suspend benefits are authorized as a means for plans to avoid future insolvency under the MPRA, also known as the Kline-Miller Act. Multiemployer plans are generally collectively bargained and involve more than one contributing employer.
Central States was the first multiemployer plan to submit an application to suspend benefits, and it also has the dubious honor of being the first to be rejected. Treasury has since rejected three other applications, all of which were filed before the Central States application was rejected. The five proposals currently under review were filed after that rejection.
There are two major lessons to be learned from the most recent rejection letters, which came in November, DeMatties said.
First, they show that Treasury is continuing to scrutinize the proposals’ actuarial assumptions. The level of detail in Treasury’s letters far exceed what the agency needed to tell the rejected plans, but was quite informative for other potential plan applicants, DeMatties said.
Second, Treasury was “laser focused” on the projections made in the Teamsters Local 469 Pension Plan application. This communicated to the plan’s actuaries that “even if their actuarial assumptions may have been reasonable in the abstract or for other purposes,” the agency doesn’t consider them to be so for supporting benefit cuts under the MPRA.
Treasury found unreasonable the application’s use of a 7.25 percent annual investment rate-of-return assumption for the plan’s entire 45-year period in which the plan’s trustees asserted that the plan would remain solvent.
For plans hoping to have their applications approved, the department’s idea of what is reasonable regarding a plan’s projections is the only thing that matters, DeMatties said.
Among the contributing employers to the Local 469 plan are energy infrastructure company Kinder Morgan; Eastern Concrete Materials, a subsidiary of U.S. Concrete; and Six Flags Great Adventure, a subsidiary of Six Flags Entertainment.
There are lessons to be learned from the Central States fund’s application failure as well.
In the rejection letter to that fund, Special Master Kenneth R. Feinberg said the proposal didn’t show that the benefit cuts would enable it to avoid insolvency. Treasury also found the proposal’s investment assumptions unreasonable.
Plan actuaries hoping to avoid a similar fate need to do more than merely assure that the plan’s actuarial assumptions are reasonable, Lowell said.
Based on the department’s language in the Central States decision letter, actuaries should go further to spell out in an application why the plan’s assumptions are in fact reasonable, Lowell said. The department needs to be specifically shown how the plan’s proposal will avoid the plan’s insolvency, he said.
Give the Treasury “real numbers based on reasonable assumptions,” Lowell said. Provide various possible scenarios in which the assumptions work and don’t work. The department is likely to appreciate such honesty, he said.
Before a plan submits its rescue petition to Treasury, it should seek a second opinion from an independent actuary on whether the application satisfies the criteria demanded by Treasury, Lowell said. A second opinion could provide valuable input as to where the application is weak and how it can be improved, he said.
The second opinion needs to be rendered by someone who is both sufficiently skilled but also fairly neutral, Lowell said. The plan’s own actuary won’t qualify to do the second opinion, nor will someone who is looking to become the plan’s next actuary, he said.
Instead, plans should consider using actuaries who function as external consultants to multiemployer plans, Lowell said. Such actuaries can be found among those who specialize in assisting plans with arbitration proceedings or with withdrawal liability issues, he said.
Seeking a dialogue with the department may also benefit potential applicants.
Before submitting an application, plan trustees should attempt to have a conversation with the department, DeMatties said.
He said he believes Treasury may be more open to having such a dialogue with benefit suspension applicants. He said he didn’t know, however, the extent of the department’s openness.
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