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Central States Nixes New Rescue Plan: Can Congress Fix the Pension Fund’s Woes?

After the Treasury Department stung Central States Pension Fund by rejecting the Fund’s Rescue Plan on May 6, 2016, the Fund quickly advised employers it would not seek approval of a new or revised Rescue Plan. Rather, Central States is putting its efforts into a legislative solution to its deteriorating financial situation, and the Fund urged employers to lobby their Congressional representatives.

In the Pension Fund’s May 20 letter it responded briefly to the Treasury’s rejection, contending that two of the three issues could have been corrected had Treasury raised and discussed them with the Fund while the Plan was pending and that the investment return assumptions Treasury criticized were acceptable in the multi-employer plan industry and based on the Fund’s historic average returns.  A copy of the Fund’s letter can be found here.

The Fund projects it will run out of money within ten years. Making the situation more dire, the Pension Benefit Guaranty Corporation (PBGC), the government’s pension insurance program, is also projected to run out of money, which may result in Central States participants’ benefits being reduced to virtually nothing.

At present two bills are pending in Congress:  U.S. Senate Bill 2147, the Pension Accountability Act (House R. 4029); and, Senate Bill 1631, Keep Our Pension Promises Act.

The Pension Accountability Act (S. 2147/H. 4029) is sponsored in the Senate by U.S. Senator Rob Portman (R-Ohio) and its counterpart in the House is carried by U.S. Representative David Joyce, also an Ohio Republican. This bill amends the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code to revise rules for voting on the suspension of pension benefits under multiemployer plans in endangered or critical status. The bill permits a suspension to go into effect unless a majority of plan participants and beneficiaries who cast a vote reject the suspension, slightly lowering the threshold from the current requirement that a majority of all plan participants and beneficiaries reject the suspension. The bill also strips the Department of Treasury’s current authority to override a vote of plan participants to reject a suspension. The Senate bill is assigned to the Committee on Health, Education, Labor and Pensions.

The Keep Our Pension Promises Act, S. 1631, sponsored by Senator Bernie Sanders (I-VT), repeals the elimination of the pension anti-cutback provisions under the Multiemployer Pension Reform Act of 2014. The anti-cutback provisions prohibit reductions in pension benefits to participants in multiemployer pension plans. It amends the Employee Retirement Income Security Act of 1974 (ERISA) to allow a plan sponsor of an eligible multiemployer plan to petition the Pension Benefit Guaranty Corporation for a partition of a financially-troubled pension plan, subsequently requiring the PBGC to establish a legacy fund to cover the administrative and benefit costs resulting from a partition. The bill amends the federal bankruptcy code to assign first claim priority to pension obligations under ERISA. The bill has been assigned to Senate Finance. While this pro-employee bill is not favored by employers, it is important because it brings the issue of pension fund insolvency to the forefront of discussion.

In addition to the two bills, Central States also appears to be building out its coalition to include additional influence groups, including possible interested parties such as the AARP, Pension Rights Fund, federal and state Chambers of Commerce, National Federation of Independent Businesses, and Teamster locals in order to bring a more cohesive lobbying effort to the issue. Different legislative solutions were proposed in 2009 and 2010, but after being labeled as union “buy outs,” the bills failed to garner enough political support to succeed.

Due to the election year and continuing partisan strife in Congress, it may prove difficult for either of these bills to move forward in the current legislative session. However, if Central States can marshal the strength of in its pensioners and beneficiaries, and perhaps with the new coalition members, the Fund may be able to bring pension reform legislation into a more productive discussion in 2017.