The US Treasury Department has approved the Alaska Ironworkers Pension Plan’s second application for a reduction of benefits, making it only the fifth fund to receive such approval under the Multiemployer Pension Reform Act of 2014 (MPRA).
The plan calls for a suspension of 26.5% of its participants’ and beneficiaries’ benefits earned as of July 1, 2016, and the amount of benefit due to each individual will be multiplied by 0.735 to calculate the new amount. According to the pension’s application, the result of the individual limitations will not reduce any benefit below 110% of the level guaranteed by the Pension Benefit Guaranty Corp. (PBGC).
In its original application, which was submitted March 2017 and withdrawn in October 2017, the plan’s benefit suspension proposal called for the reduction of all benefits earned through June 30, 2016, by 34.5% for all participants and beneficiaries. It’s not uncommon for pensions that have applied for benefits reductions to withdraw and reapply if they have reason to believe their first proposal will not be accepted by the Treasury Department.
Investment losses in the early 2000s caused the funded ratio of the Alaska Ironworkers Pension to decline to 77.6% in 2006, before rebounding to 82.7% in 2008. However, in the wake of the financial crisis of 2008, the funded ratio plunged to 58.2% within a year. The plan’s actuary’s report in 2009 stated that in order to avoid further decline, the plan would need one or more of contribution rate increases, investment returns greater than the actuarial assumption of 6.25%, a contributory hours increase, or reductions in benefits.
“Despite all of the trustees’ best efforts, the funded ratio has not recovered significantly from 2009, reaching only 55.4% by 2016, despite reductions in benefits and annual increases in funding contributions,” said the plan in its application.
Between 2006 and 2016, the number of active participants in the plan decreased to 153 from 227, while the number of retirees increased to 569 from 522, and the number of terminated vested participants increased to 101 from 73.
“These simple demographic changes help explain why the large non-accrual contribution by active employees has not been enough to pull the plan out of its funding deficiency,” said the pension. “The trustees have determined that any further increases to contributions would lead to the loss of contributing employers, either through bankruptcy or through withdrawal.”
The approval is not a final authorization for the pension to implement the benefit reduction. According to the Treasury Department, no reduction of benefits can take effect without a vote of the participants and beneficiaries of the plan with respect to the proposed reduction, and the MPRA requires the Treasury to administer the vote in consultation with the Department of Labor and the PBGC.