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May 6 — The Treasury Department nixed the Central States pension fund's controversial petition seeking to cut plan participant and retiree benefits.
The Central States, Southeast and Southwest Areas Pension Fund's rescue proposal was rejected because it failed to meet the requirements of federal law, Treasury Special Master Kenneth Feinberg told reporters in a conference call May 6.
The fund's proposal didn't show that the plan would avoid projected insolvency, Feinberg said. Treasury found that the investment assumptions the fund submitted were unreasonable, he said. In addition, the application failed to show that the cuts would be equitably distributed and the fund didn't send out adequate notices about the cuts that were “understandable to the average plan participant,” he said.
The ruling comes as a blow to Central States' hopes of bypassing insolvency.
Thomas C. Nyhan, the fund's executive director and general counsel, expressed his disappointment in a statement May 6. He warned that the fund could run out of money in 10 years or less and that participants could end up with “virtually nothing,” given that the fund can't rely on financial assistance from the Pension Benefit Guaranty Corporation's insurance program because that program faces possible insolvency as well.
Instead, Nyhan called on Congress “to act now to pass legislation” to protect the fund's participants.
The department's decision could have some impact on other financially struggling multiemployer pension funds that have or were planning to file their own rescue plan with Treasury.
But Feinberg said during the call that the department's ruling pertained to Central States' application alone and that all other fund applications would continue to be reviewed independently.
Conversely, the rejection is just what the doctor ordered for many fund retirees and their allies in Congress, who were hoping for a halt or delay in the fund's implementation of potentially devastating cuts to the once-promised accrued benefits that many retirees said they were facing.
“It is a very good day for a lot of senior citizens who worked very hard informing legislators and other public officials” as to the hardship that would result from these cuts, John F. Murphy, eastern region vice president with the International Brotherhood of Teamsters in Washington, told Bloomberg BNA May 6.
A legislative solution, however, is needed to fully resolve the problems faced by multiemployer plans, Murphy said. The Teamsters, he said, is working on a proposal that would create other sources of funding for multiemployer plans that would require legislative action, but wouldn't involve government funding. Such a proposal could be made public in as little as 90 days, he said.
Despite the ruling, the fight between those seeking to prevent the insolvency of the Central States fund and other multiemployer pension plans and those intent on preserving the benefits promised to retirees is likely to continue.
Last fall, Central States, which covers roughly 400,000 Teamster-represented workers and retirees, became the first fund to file a rescue petition with Treasury (205 PBD 205, 10/23/15).
Since then, at least four other plans have filed similar petitions and it is speculated that many others are considering such a move. These petitions are authorized by the Multiemployer Pension Reform Act of 2014, also known as the Kline-Miller Act.
That law permits plans, for the first time since the Employee Retirement Income Security Act was enacted in 1974, to reduce participants' accrued benefits. The MPRA also requires Treasury, in consultation with the Department of Labor and the PBGC, to determine whether a plan's proposed cuts are being implemented equitably and whether they are likely to prevent the fund's insolvency within 10 years.
Feinberg said Treasury relied extensively on input from the DOL and the PBGC and that all three agencies agreed to the decision to reject Central States' application.
Feinberg also said that in making his decision, he relied on the comments of thousands of people, including those from retirees during eight town hall meetings in various cities where many of the retirees reside and also in weekly telephone conference calls open to the fund's participants and retirees.
During those conversations, many retirees disputed the idea that the fund was implementing the cuts fairly. Some said the fund told them that their once-promised benefits were to be cut by as much as 70 percent.
In mid-April, the entire Democratic Party Senate caucus—plus two independents who caucus with the Democrats—sent a letter to Treasury urging it to closely scrutinize Central States' proposal (75 PBD, 4/19/16).
With Nyhan calling for a legislative solution, three congressional proposals have already been introduced as alternative paths to address cuts to retirees' benefits.
The Keep Our Pension Promises Act (H.R. 2844, S. 1631) would repeal the MPRA's benefit cutback provisions (118 PBD, 6/19/15). Its current sponsors are all Democratic caucus members.
The Pension Accountability Act (H.R. 4029, S. 2147), which addresses plan participant voting on any proposed benefit suspensions approved by Treasury, has some bipartisan backing but less overall support than KOPPA. The PAA would allow a majority of plan participants and beneficiaries who cast a vote—instead of a majority of the total participants and beneficiaries—to reject proposed pension cuts (195 PBD 195, 10/8/15).
Five Senate Democrats on April 28 introduced a third bill, the Pension Fund Integrity Act of 2016 (S. 2894). It would cut the salaries of and bar raises and bonuses for top pension fund executives at the largest financially troubled plans if retirees’ benefits are slashed as part of a rescue petition (86 PBD, 5/4/16).
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