Treasury Department Rejects Central States Pension Fund's Benefit Reduction Proposal
May 9, 2016
By Sarah Kregor
As we discussed in a prior alert, in September 2015 the Teamsters’ Central States Pension Fund submitted a proposed “rescue plan” to the U.S. Department of Treasury (Treasury). The Central States Pension Fund is severely underfunded and the rescue plan would have allowed the fund to reduce participant benefits in order to avoid insolvency. Such benefit reductions are permissible under the Multiemployer Pension Reform Act of 2014 (MPRA), but a fund must first submit a proposed rescue plan to Treasury for approval.
On Friday, May 6th, Treasury denied the Central States Pension Fund’s rescue plan proposal, stating that (i) two of the assumptions used by the fund for actuarial projections were not reasonable, (ii) the benefit reductions were not going to be equitably distributed across the participant and beneficiary population, and (iii) notices provided to participants and beneficiaries were not written to be understood by the average participant. As a result, the fund is not able to implement the benefit reductions it proposed.
Although Central States’ proposal was controversial, it appears to be the only viable option available under the current law to avoid the fund’s insolvency. The Central States fund is one of the largest multiemployer pension funds in the country. If the fund were to become insolvent, it would effectively bankrupt the Pension Benefit Guaranty Corporation’s (PBGC’s) multiemployer plan insurance program. This would result in the fund’s participants receiving no benefits at some point. It would also affect all other multiemployer funds, which are covered by the PBGC’s insurance program. Although we will have to wait and see whether there are other options Central States can pursue (including, for example, a revised rescue plan), it now appears more likely that Congress will need to take further action to solve the ongoing multiemployer pension funding crisis.