On December 16, the Iron Workers Local 17 Pension Fund (the Iron Workers Fund) became the first multiemployer pension plan to receive approval from the US Department of the Treasury (the Treasury Department) to cut benefits for participants as part of a proposed rescue plan under the Multiemployer Pension Reform Act of 2014 (MPRA). MPRA permits trustees of a significantly underfunded pension plan to apply to the Secretary of the Treasury Department to reduce participants’ benefits if (1) the plan is headed for insolvency within 15 years from the time the rescue plan would be implemented and (2) the trustees have exhausted all other means to avoid insolvency.
Any MPRA-approved benefit cuts may not reduce the benefit below 110% of the Pension Benefit Guaranty Corporation’s guaranteed benefit amount, which is approximately $13,000 per retiree per year. At the time of the filing, the Iron Workers Fund was in “critical and declining” status and had approximately $85 million in assets and $225 million in liabilities, creating a funding ratio of approximately 40%. In addition, only 32% of its participants were currently active, and it was, at the time, projected to become insolvent by 2032.
Earlier this year, the Central States Southeast and Southwest Areas Pension Fund (Central States), one of the largest multiemployer pension plans in the United States, made national headlines when it filed an application with the Treasury Department seeking a reduction of benefits for plan participants. As we previously reported, the Treasury Department denied Central States’ application in May 2016. Such denial was then followed up by denials for similar requests to reduce benefits for the Road Carriers Local 707 Pension Fund in June 2016, and for both the Ironworkers Local 16 Pension Fund and the Teamsters Local 469 Pension Fund in November 2016.
The string of denials may have led the multiemployer pension plan community to assume that the Treasury Department would never approve a MPRA benefit denial application. However, now that the Treasury Department has approved the Iron Workers Fund’s application to reduce benefits, other troubled funds may be encouraged to make similar applications in the near term.
The Treasury Department’s letter to the Iron Workers Fund’s trustees indicated that the notice is not the final authorization to implement the benefit suspensions and that the next step is for the Iron Workers Fund’s participants to vote on the proposed benefit cuts.