The US Treasury Department has given the trustees of the Teamsters Local 805 Pension Fund the go ahead to enact benefits reductions as of Jan. 1 under the Multiemployer Pension Reform Act of 2014.
In October, the Treasury determined that the fund was eligible to reduce benefits, and on Nov. 16 sent a letter to the fund notifying it that it has final authorization to start making the cuts, despite the fact that nearly twice as many people voted against the plan than voted for it.
According to the Treasury’s authorization letter, 296 members voted in favor of the cuts, while 535 rejected them. But because a majority of the fund’s members (1,098) did not return ballots, the benefit reduction was permitted to take effect.
The plan’s actuary estimated that based on how much money the plan is expected to receive and to pay out each year, the plan would not have enough money to pay benefits in the plan year ending March 31, 2022, without a reduction of benefits. The pension fund stated in its application that the benefits suspension will treat all participants equally and reduce their benefits by the maximum amount allowable under the MPRA. The MPRA states that benefits cannot be reduced by less than 110% of the amount provided by the Pension Benefit Guaranty Corp. (PBGC).
At the same time the pension’s trustees received clearance from the Treasury to make the cuts, the PBGC approved the fund’s application for an order partitioning the plan. The pension lifeboat said the approval was based on the plan’s representatives demonstrating that the plan will remain solvent with a partition, provided it follows certain procedures.
Under the partition, employers will increase contributions by 3% annually; employers will maintain a stable number of active participants, after a modest drop through 2027. The fund also must set its expected return on assets, net of investment expenses, at 5.25% starting in the plan year ending 2018, and grading upward every five years to 7.25% for the plan year ending 2033. The PBGC also said the partition will reduce PBGC’s expected long-term loss with respect to the plan by $28.7 million.
The Local 805 Pension Fund is the eighth pension fund to receive approval for a reduction of benefits since the MPRA was enacted in 2014, and seven funds have applications for benefits reductions that are currently under review by the Treasury Department.