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A pension fund in Nashville is now the second plan covering unionized workers to receive Treasury Department approval to cut members’ benefits.
The department, in a letter dated July 20, approved the United Furniture Workers Pension Fund A’s application under the Multiemployer Pension Reform Act, also known as the Kline-Miller Act. That law was designed to rescue financially troubled plans from insolvency. The Cleveland-based Iron Workers Local 17 Pension Fund is the only other union plan that’s received Treasury permission to cut participant benefits.
The Furniture Workers fund’s proposal is the first under the MPRA to have its plan partition request get conditional approval from the federal Pension Benefit Guaranty Corporation, which guarantees a minimum benefit to plan participants. If the partition is approved as part of a vote by plan members, the plan would be divided into two plans--the original plan and a successor plan--with the PBGC providing financial assistance to the successor plan.
The successor plan would consist of the guaranteed benefit liabilities of vested terminated participants--those no longer working but not yet entitled to benefits--and also more than half of the benefit liabilities owed to retirees, beneficiaries, and members receiving disability retirements.
“Without the relief spelled out in the fund’s proposal, the fund would run out of money in 2021,” and its participants would be entitled to much lower benefits under the PBGC’s guarantee, Kyle Flaherty, the plan’s attorney, told Bloomberg BNA July 21. Under the proposal, neither disabled participants nor participants age 80 and over will have any cuts, and retirees who are age 75 to 79 will have their cuts limited, said Flaherty, a partner at Bryan Cave in New York.
Under the proposal, 71.5 percent of the fund’s 9,896 participants won’t receive any cuts and only about 6 percent will have cuts of more than 10 percent. The cuts will be the steepest for approximately 295 members who would have their accrued and previously protected benefits cut by 30 percent or more.
“This is why we need to get a new better solution to fix underfunded plans because otherwise these plans are being fixed on the backs of retirees, which is grossly unfair and untenable,” Karen Friedman, executive vice president of the consumer advocate Pension Rights Center in Washington, told Bloomberg BNA July 21. The retirees want a moratorium on these approvals until a better solution is found and their voices are heard, she said.
The application Treasury approved was the fund’s second bite at the apple, as the fund’s trustees had withdrawn its original petition and resubmitted a new application with adjustments.
“I think we’re starting to see some stability in what applicants and stakeholders can expect to see in the process--even though not everyone agrees with Treasury’s interpretations,” Dominic DeMatties, partner with Alston & Bird in Washington, told Bloomberg BNA July 21. When Treasury determines that an application can’t be approved, it’s providing sufficient feedback to allow applicants that are able to and who so choose to submit a revised application that can be approved, said DeMatties, who previously served as an attorney-adviser in Treasury’s Office of the Benefits Tax Counsel.
Plan trustees should now be able to use the existing record of the differences between initial applications and revised applications in the case of the approvals to improve their chances of having their applications approved on the first try, he said.
The next step for the fund is to submit the proposal to cut benefits and partition the plan to a mail-in vote of its membership under a process that’s expected to take about six weeks to complete. The proposal will be considered approved unless a majority of participants vote to reject it.
Participants who don’t vote will be counted as having approved it. If a majority of those who cast ballots vote to reject the proposal but don’t constitute a majority of all participants—both voting and non-voting—the plan would be approved.
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Treasury's letter approving the fund's application is at https://www.treasury.gov/services/Responses2/UFW%20Notification%20Letter.pdf.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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