Since the enactment of the Kline-Miller Multiemployer Pension Reform Act (MPRA) in December 2014, 15 plans have filed MPRA benefit suspension applications. The Treasury Department has approved three plans; the first was Cleveland Iron Workers Local 17 Pension Fund; the benefit cuts went into effect on February 1, this year. The second was United Furniture Workers UFW, which was approved for a partition by the Pension Benefit Guaranty Corporation (PBGC) and early financial assistance under MPRA. Most recently, the Treasury approved the third plan: the New York State Teamsters Conference Pension and Retirement Plan, although the union is disputing the actual vote.
According to multiple sources, somewhere between 9% and 15% of multiemployer pension plans are in critical and declining status and are projected to become insolvent, having no assets available to pay benefits, within the next 20 years. “Most multiemployer plans are not in financial distress. A small number of plans, however, are deeply troubled and must take action or they will not recover,” says Michael Scott, executive director of the National Coordinating Committee for Multiemployer Plans (NCCMP), in Washington, D.C.
“Before MPRA, there was only one shade of gray, and that was ‘critical,’ and now MPRA added a new category, ‘critical and declining,’ to indicate plans that expect to run out of money within 20 years,” according to Eli Greenblum from Segal Consulting, headquartered in New York City.
Generally, when a multiemployer plan has too few assets to pay benefits, the PBGC steps in with a loan, according to the NCCMP. The PBGC is a government corporation, funded by plan premiums, that provides a small, statutorily guaranteed benefit to the participants of insolvent plans. Since 1975, 53 multiemployer plans have received financial assistance, and another 61 have been booked, as they expect to become insolvent as well. The statutory maximum guaranteed benefit at 30 years of service is $12,870 per year, and the program has a significant deficit in program assets to be paid.
In contrast, Scott explains, under MPRA, “plans may make an application only if they are able to preserve benefits at or above 110% of the amount that any given participant would receive at the PBGC, and restore the plan to solvency.” Under MPRA, participants will receive more than they would if the plan became subject to the PBGC guarantee.
MPRA was intended to provide multiemployer plan trustees with the difficult, but necessary, tools required to restore their troubled plans to solvency and to protect retirees from the even larger benefit reductions they will see when their plans go insolvent and become subject to the PBGC guarantee, says Scott.
The retirement industry was hopeful when the act first passed. But, Greenblum says, “Treasury needs to re-examine its process so that plans can feel they have a chance to be successful on the attempt.”
For instance, of the three MPRA application approvals to date, all had previously applied to the Treasury and then withdrawn—presumably because they had conversations with that department and knew the application, as it was, would be rejected. Each plan then resubmitted its application and went through the process again. Greenblum notes that, in order to reapply, an organization must pay for revised actuary projections and reinform participants that their benefits will be cut.
Another Alternative Needed
Why is it that these organizations have had to reapply? Says Scott, “MPRA was intended to give deference to the judgment of the trustees [and their plan professionals], in evaluating the application. Treasury has second-guessed the trustees’ determinations—in whether a set of benefit adjustments is ‘equitable,’ whether the expectation of future work is correct—and [those of] the plan professionals, on any number of projection assumptions, rather than granting deference to the people who are closest to and have the best understanding of the problem.”
In addition to the three plans that were approved, there have been five rejections including Central States, Southeast and Southwest Areas Pension Plan more than one year ago. Two other plans applied, withdrew and have not reapplied. Another five plans are in the approval process.
Greenblum says, “PBGC’s approach to MPRA candidates seems to be far different than the Treasury approach, to date.”
For instance, PBGC officials work with plans applying for partitions.
According to a PGGC official, “In the preamble for a partition, we encourage people to come in for an analysis. Often we have people just calling. We can do some rough estimates and calculations to figure out what group would need to be partitioned off, for instance. With some back and forth, the plan sponsor would know if it is mathematically possible or not possible. It’s good for them, in case it’s not going to work at all. Many of our informal discussions are really educational. It doesn’t always turn into number crunching, but we feel very strongly about helping our people understand our regulations and the aspects of the law that refer to the PBGC.”
Scott says that technical corrections to MRPA are needed to ensure it is implemented as intended. “It needs to be faithful to the original intent of Congress and the multiemployer community that drafted the legislation,” he says. “Treasury was to issue guidance soon after the passage of the 2014 law, but instead temporary guidance was issued. Final guidance was not issued until 10 days before the Central States plan application was denied. The withdrawn and resubmitted applications that have been approved to date reflect both the reissuance of significantly changed guidance from the temporary guidance and the evolving position of the Treasury as it reviews these applications,” he says.
“For those that Treasury unfortunately denied,” he adds, “another alternative will be required. We are working on that alternative. But time has passed, plans have continued on their path toward insolvency, and any fix will likely require more significant changes than were previously contemplated.”