The Western States Office & Professional Employees Pension Fund is the latest pension to apply to the Treasury Department to reduce benefits under the Kline-Miller Multiemployer Pension Reform Act.
“This has been a very difficult decision,” said the Oregon-based fund’s board of trustees in a statement. “Reducing pensions for current and future retirees and beneficiaries is not something we ever thought we’d have to do. However, these changes are the last best option for preserving the Plan, so the Plan can continue to provide the benefits now and in the future.”
The fund’s board has proposed a 29% decrease for all participants and beneficiaries, but no reduction below 110% of the PBGC guaranteed benefit for each affected participant. Under the plan, disability pensions are not reduced, and participants who are age 80 or older on Dec. 31, 2017, have no reduction.
Under the proposed benefit reduction plan, a 55-year-old active participant with 25 years of service would see their benefits reduced to $1,196.35 from $1,685.00. A 64-year-old retiree with 14 years of service would have their benefits cut to $646.10 from $910. And a retiree aged 77 and 6 months with 36 years of service would have their benefits lowered to $2,128.95 from $2,490.
The Western States Office & Professional Employees Pension Fund was first certified to be in critical status with the Treasury Department in 2009, and is projected to become insolvent in 2035 if no changes are made.
According to the fund, “a combination of forces have battered the plan’s finances.” The number of retired participants and vested terminated participants exceeds the number of active participants by 8 to 1; the number of employers contributing to the plan has fallen to 180 in 2016 from 280 in 2008, and the number of active participants has plunged by 62% since 2008.
During the 2008 financial crisis, the plan suffered investment losses of 32%, and although returns have since stabilized, it hasn’t been sufficient to make up for the loss. As of January 1, 2016, the value of the fund’s liabilities was $535 million, while the value of its assets was $334 million, which means it was only 62.5% funded.
The Treasury Department will have until Sept. 28 to make a decision on the fund’s application for benefit reductions.
“This is the last best option for preserving our Pension Plan,” said the fund in a statement. “If approved, the proposed pension benefit reduction and recovery plan will stabilize the pension plan’s finances and allow it to continue to pay benefits to all participants in the future. However, a shared sacrifice is required, as most Plan participants will see benefit reductions.”
By Michael Katz