On September 23, 2019, the trustees of the Detroit Carpenters’ Pension Plan submitted a Pension Recovery Program application to the U.S. Treasury Department.
The Multiemployer Pension Reform Act of 2014 (MPRA) allows plans in “critical and declining status to avoid insolvency by reasonably cutting benefits, including those already in pay status. After first requiring approval from the Department of Labor (DOL), the Pension Benefit Guaranty Corporation (PBGC) and the Department of the Treasury, benefit suspensions will only go into effect if a majority of all participants vote to approve them.
The Department of Treasury’s website currently shows 37 applications and their status. The Detroit Carpenters’ application is not yet published on its website.
In a notice to employer members of the plan, the Detroit Carpenters’ Pension Plan noted that it has been in the Red Zone (per Pension Protection Act (PPA) rules) since 2006 and was certified to be in Critical and Declining status in 2018. It says the fund is projected to run out of money in 15 years unless action is taken.
“As you also know, we have been trying to fix the Plan’s finances since 2006. The Trustees have reduced the accrual rate and the multiplier, as well as increased the contribution rate. Despite these efforts to keep the Plan on sound financial footing, a combination of forces largely beyond our control has battered the Plan’s finances and now threatens the Plan’s survival,” the notice says.
The trustees attribute the “battering” of the fund’s finances to investment losses due to the 2000 and 2008 stock market crashes, bad government regulations, job losses and declining hours, and an unsustainable ratio of 2.4 retirees and deferred vested participants to every one active participant. These are common problems in multiemployer pension plans.
Of the applications received by the Treasury so far, 14 have been approved, five have been denied, and the others have either been withdrawn or are in review.
Benefit reductions under the MPRA have faced controversy. In 2018, participants in a multiemployer pension plan that received permission from the Treasury Department to reduce member benefits filed a lawsuit challenging whether the government can indeed authorize a private pension plan’s trustees to cut vested benefits.Meanwhile, legislators are working hard to find another way to keep multiemployer plans solvent. The Ways and Means Committee of the U.S. House of Representatives marked up and voted along party lines to advance a new bill formally titled the Rehabilitation for Multiemployer Pensions Act, setting the stage for full floor consideration and the amendment process. As passed by the committee, the act would provide funds for 30-year loans and new financial assistance, in the form of grants, to financially troubled multiemployer pension plans.
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