On December 16, 2016, the U.S. Treasury Department notified the trustees of the Iron Workers Local 17 (Cleveland area) Pension Fund that their application to reduce pension benefits under the Kline-Miller Multiemployer Pension Reform Act of 2014 (the “MPRA”) was approved. This is the first time Treasury has approved a union pension plan’s proposed reduction of benefits under the 2014 law. In May 2016, Treasury turned down the proposed “rescue plan” from the Central States Pension Fund, concluding that the plan did not have a reasonable chance of success to save the Central States Fund from insolvency. Treasury has also recently rejected a number of other smaller union pension plan proposals. For example, proposals from the pension funds of Teamster Local 469 in New Jersey and of Iron Workers Local 16 in Baltimore were both rejected by Treasury last month.
The MPRA application submitted to Treasury called for reducing benefits “indefinitely” to allow the plan to remain solvent with enough assets to pay the reduced level of benefits. The primary considerations in Treasury’s approval:
- Without the cuts, the entire pension fund will be insolvent within a decade, according to Fund projections. Iron Workers Local 17 earlier this year reported $224 million in long-term liabilities and only $90 million in assets.
- Treasury found that the pension fund’s calculations and assumptions were realistic, based on what it could accomplish with the cuts, as well as its projections for future income from investments. This is largely what makes Local 17’s request for cuts different from Central States’ and other rejected plan proposals.
As a result of Treasury’s approval, the proposed benefit reductions will now be subject to a vote of participants and beneficiaries of the Pension Fund, whose vote will decide whether the proposed reductions will either go into effect or will be rejected. Ballots will be mailed to participants and beneficiaries no later than December 31, 2016. Under the MPRA statute, the veto by plan participants can be overridden by Treasury, but only if the plan is “systemically important” (meaning, if its insolvency would cost the PBGC losses of more than $1 billion).