The Laborers Local No. 265 Pension Plan of Cincinnati has applied to the US Treasury department seeking a reduction of benefits under the Multiemployer Pension Reform Act of 2014.
In January, the plan was certified by its actuary to be in “critical and declining status” for the 2017 plan year, and has been in critical status since 2009. According to the plan’s actuary, the pension is approximately 50% funded for the current plan year, with $49.1 million in assets against $97.9 million in liabilities. The actuary estimates that it will become insolvent at the end of the 2029 plan year.
The plan’s board of trustees adopted a rehabilitation plan that includes increases in the hourly contribution rate, as well as changes to early retirement, disability retirement, and death benefits. The plan calls for a flat reduction of 40% to every participant, beneficiary, ex-spouse, and retiree.
The board said the plan will offer a sustainable level of benefits, protect its most vulnerable participants, and avoid seeking assistance from pension lifeboat the Pension Benefit Guaranty Corp. (PBGC), which itself is expected to become insolvent four years before the Local No. 265 Pension Plan is forecast to run out of funds.
“The Board of Trustees does not think it is reasonable to rely on the PBGC,” said the board in its recovery plan.
In its application, the board of trustees said it “understands the difficulty the MPRA suspension will place on those close to retirement, as well as the current retirees, beneficiaries, and some alternate payees,” but added that “MPRA suspension is still preferable to the deeper cuts that would be necessary when PBGC begins providing financial assistance.”
The plan blames its funding problems on “multiple unforeseeable problems” stemming from the dot-com bubble burst in 2000, when the plan’s investments were hit hard, and the promised benefits could not be reduced. It said that from 2000 through 2002, the plan’s investments were expected to make 7.5% per year, but actually lost an average of 3.5% per year.
Although returns stabilized through 2007, the market crash of 2008 resulted in another loss of 28.7% to the fund. And following the 2008 market crash and recession, the plan’s overall hours worked fell to 213,183 in 2013 from 292,345, which translated to lower-than-expected returns.
The Treasury is expected to give its decision on the application no later than March 13, 2019, although the deadline may be extended by mutual agreement of the plan and the Treasury. If approved, the benefit reductions from the recovery plan are expected to kick in as of May 1, 2019, and continue indefinitely.
Since the MPRA was enacted, seven plans’ applications for a reduction in benefits have been approved, and 10 applications are currently under review.