The Iron Workers Local 17 Pension Fund is the first multiemployer plan to approve benefit cuts for current retirees following a participant-wide vote last week.
The cuts will average 20% for participants, and range up to 60% for current retirees. Without the changes, the plan was on a course to become insolvent and relying more on the Pension Benefit Guaranty Corporation, which is facing its own financial difficulties.
The $85 million fund was 32% funded with $263 million in liabilities (current retirees made up 80% of the liabilities). Despite the vote, 52% of the participants will see no cut.
The Iron Workers pension lost significant assets to the dot-com bubble and the financial crisis and is working to balance some of the benefits.
One man who retired in 2008 after contributing $167,000 to his pension was receiving $3,500 a month. “So he got all of the money that he put in back out in the first four-and-a-half years,” Teresa Pofok, legal counsel to the pension fund told CIO. These are the types of workers who will see the largest cuts, she continued. About 30 pensioners—making $4,000 and $5,000 a month—will see a benefits reduction of 50% to 60%.
Under the 2014 Kline-Miller Multiemployer Pension Reform Act, the Iron Workers’ fund is the first multiemployer plan approved to reduce benefits by the Treasury Department.
Upon receiving the approval, the fund put it up to vote by pension participants, a choice described as “getting a haircut now or a beheading in the future,” according to the plan’s board chairman.
Out of the 1938 eligible voters, only 16% voted to reject the cut, according to a press release, and the votes cast were two-to-one in favor of approval.
“The trustees appreciate that a majority of the participants understood that the suspension plan, while reducing their pensions now, is a better alternative than letting the pension fund become insolvent,” the fund said in a statement.
The reductions will take effect February 1, and give the fund a 54.2% chance of staying solvent.