January 30, 2017
On January 27, 2017, the Treasury Department (Treasury) issued final authorization to the Board of Trustees of the Iron Workers Local 17 Pension Fund (Fund) to suspend benefits under the Multiemployer Pension Reform Act of 2014 (MPRA). The Fund is the first multiemployer defined benefit plan to have received such final authorization.
Enacted in December of 2014, MPRA gives trustees of the most seriously underfunded plans the ability to avoid insolvency by reducing certain benefits, including benefits of participants in pay status, subject to numerous criteria and restraints, if doing so would allow the plan to avoid insolvency indefinitely. This new type of benefit reduction is referred to as a benefit suspension. It can, by itself or in combination with a partition, prevent the further decline and likely demise of the plans for which it was created, and can protect a larger benefit for current and future retirees than they otherwise might receive if the plan were to become insolvent.
The approval process for a MPRA benefit suspension is stringent. In general terms: after a plan determines it is eligible to apply and that its benefits can be reduced in a way that will satisfy all of the legal criteria and restraints that are applicable, it submits a suspension application to Treasury for approval. If Treasury approves the application, it must be ratified by participant vote. Under the MPRA voting rules, the approval is ratified unless a majority of all eligible plan participants and beneficiaries vote against it. If ratified, the final step is Treasury’s authorization to proceed with the benefit suspensions.
The Fund submitted its application to suspend benefits on July 29, 2016 and the application was approved December 17, 2016. The voting period ended on January 20, 2017, and the vote ratified Treasury’s approval of the application. Treasury’s authorization to commence the benefit suspensions followed. Benefit suspensions go into effect on February 1, 2017, and continue indefinitely, provided that the Trustees demonstrate on an annual basis that the reductions remain necessary to avoid insolvency.
This approval, although difficult for all those directly affected, is hopeful news for plans for which a MPRA benefit suspension might be the only way to avoid the even smaller benefits that insolvency would leave for their current and future retirees. It also is important to remember that other options, singly or in combination, may be available for multiemployer plans facing financial difficulties, including:
Many of these options require approval by the Pension Benefit Guaranty Corporation. Segal can help trustees evaluate the options so that they are able to determine whether they address the plan-specific needs. Segal also can help trustees navigate the requirements that must be satisfied to implement these options.
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