By Mary Velan
Gov1
What Happened?
The Central States Pension Fund filed an application with the U.S. Department of Treasury seeking approval for a pension rescue plan under the Multiemployer Reform Act of 2014. The fund hopes to continue providing benefits to its more than 400,000 members through the proposed pension rescue plan, which will likely cause a reduction in benefits but ensure the fund remains afloat.
Why The Rescue Plan?
The Central States Pension Fund is led jointly by a union and several companies, making any reorganization effort difficult because a variety of stakeholders will battle over unique interests. The fund’s breadth is so great that its success ensures the stability of a federal insurance program that pays benefits to a million retirees across the country. Despite these responsibilities, the fund is seeking to reorganize itself and possibly serve as a model for other retirement plans unable to overcome financial downturns, The New York Times reported.
The Central States Pension Fund plans to avoid a devastating collapse of the system by reducing payouts to members. This will allow what money does exist in the fund to last longer and prevent insolvency. Currently, the fund is paying out $3.46 in pension benefits to retirees for every dollar brought in by employer contributions. At this rate, the fund is set to run out of money in the next 10 to 15 years unless members accept benefit cuts now.
The U.S. Department of Treasury will review the Central States Pension Fund’s restructuring proposal to ensure it is in compliance with new laws. If the Treasury approves the plan, the fund’s 407,000 members will vote on the benefits cuts and restructuring strategy. Fund officials argue the short-term benefits cuts would ensure long-term stability of the payouts to members, while the restructuring would allow for the fund to last another 50 years, The New York Times reported.
How It Works
The Central States Pension Fund is a multiemployer pension plan insured by the federal government’s pension insurance program. If approved, the Treasury would have the legal authority to impose the changes as the fund is considered large enough to be “systemically important” and its collapse could jeopardize one million retirees receiving payouts from the Pension Benefit Guaranty Corporation.
While mutliemployer pension plans were very popular over the past century, and considered stronger than single employer pension plans, they have been hit hard by the economic downturn. Many employers went bankrupt after 2008, leaving growing populations of worker and retiree members for other employers in the funds to take care of. The financial strain on the pension plans resulted in lenders no longer providing them credit. The Multiemployer Pension Reform Act of 2014 was enacted to provide a legal framework for distressed pension plans to restructure and avoid collapse, The New York Times.
According to the Central States Pension Fund, the restructuring plan includes slowing the rate at which active members would accumulate benefits in the future and lowering payouts to current retirees - with exceptions for retirees over the age of 75 and individuals receiving disability benefits. In addition, it will now be allowed for pensioners to return to work after retirement to supplement their reduced pensions, The New York Times reported.
Opposition
As in any pension debate, there is vocal opposition to the Central States Pension Fund restructuring plan. Some argued the vote to approve the plan placed in front of the 400,000 members may not be legitimate, thus creating an illusion of democracy where none is present. In response to the strategy of cutting retiree benefits in multiemployer pension plans, U.S. Senator Rob Portman is proposing a bill that would protect union members by forcing negotiations before benefits are cut. The Portman Pension Accountability Act would force pension plan trustees to negotiate with retirees to ensure a democratic decision-making process, Cleveland.com reported.
The bill would, in essence, undue the measures protecting multiemployer pension plans from collapse created under the Multiemployer Pension Reform Act of 2014. Portman argues this bill was passed last December catching many retirees by surprise, leaving them little time to find a source of income to make up what was lost in benefits cuts. Portman’s proposal would require that union members and retirees all get a vote on the rescue plan and the results must be binding. This would eliminate the Treasury’s legal authority to enact the rescue plan in the interest of preventing a collapse by overruling the member votes. If members choose to vote down the rescue plan, pension trustees would have to come up with another solution to present the union, Cleveland.com reported.
In response to the proposal, the Central States Pension Fund trustees argued that prolonging the reform process only compounds the unfunded liability disparity that must be remedied. If changes are not made soon, the fund may reach a “point of now return.”