The US Department of the Treasury recently appointed Kenneth Feinberg to spearhead an effort to review the pension plans of struggling multiple employers facing funding shortfalls. This effort is part of the Kline-Miller Multiple Employer Pension Reform Act of 2014, enacted late last year, which may legally reduce member benefits under the new pension reform.
According to the Treasury announcement, Mr. Feinberg has been appointed Special Assistant to oversee the Kline-Miller Act. In this capacity, your role is:
- Provide an impartial review of applications;
- Determine if the applications meet the requirements established by Congress; and
- Make sure affected stakeholders have a single point of contact dedicated to this process.
Tough decisions ahead
The appointment of Mr. Feinberg may indicate difficult times for multi-employer pension plans. The fact that the Treasury has formalized a role to oversee the pension reform processes means that the Department expects to receive requests for reductions in plans from multiple employers.
In a previous article on ERISA Benefits published in January, it was reported that the new legislation could affect nearly 10 million members of multi-employer pension plans. These private pension plans, traditionally created through collective agreements between a union and two or more employers, have suffered in recent years. Contributing factors include a shrinking pool of unionized workers, significant economic fluctuations that affect investment performance, and interest rate challenges faced by all pension plans. Industries such as construction, trucking, mining, and other small businesses have a stake in these plans.
A story from June 18 in the New York Times, titled “Kenneth Feinberg to Oversee Cuts in Multi-Employer Pension Plans,” reported that before the cuts are effective, certain regulations must first be met:
- Trustees must show that by cutting retiree pensions, the plan will remain solvent for at least 30 years;
- Trustees must show that even though they have already taken other measures, such as getting larger contributions from workers and / or companies, the plans are still on the road to insolvency; and
- Workers and retirees should be notified of the proposed cuts and have the opportunity to vote on them.
According to the article, Mr. Feinberg said that if the proposed changes are unacceptable, he will send them back to the plan administrators for additional work. He also admitted that he could override any vote against the plan cuts if there is no other alternative, and if the plan is deemed “consistently important,” meaning taking it on would cost Pension Benefit Guaranty Corp. (PBGC) more than $ 1 billion. However, some plan participants are protected from a reduction in benefits, including retirees age 80 and over and participants receiving disability benefits.
The PBGC believes that about 10 percent of all multi-employer pension participants have distressed plans, but said many of them are taking other steps to postpone insolvency or improve their financial prospects.
Math doesn’t work
Although there are no pending applications to be reviewed under the new program, there are indications that the Teamsters Central States, Southeast & Southwest Areas Pension Plan, Rosemont, Ill., Is considering developing a rescue plan, according to a website special. the multi-employer plan created to provide details and updates.
The plan, which has more than 400,000 workers, could devastate PBGC’s insurance program if it fails. That means payments to retirees from other plans that currently rely on government intervention would stop. If Central States takes no action, the plan will run completely out of money in 11 years.
According to a recent Pensions and Investments In the article, the pension fund had assets of $ 17.8 billion as of December 31, down from $ 18.7 billion a year earlier.
“However, even record returns from short-term investments will not be enough to resolve the fund’s imbalance,” the bailout website explained. “For every $ 3.46 the fund pays in pension benefits, only $ 1 is collected from contributing employers, resulting in an annual deficit of $ 2 billion. That math just doesn’t work.”
The pension fund has been in “critical and declining status” since 2008, a PBGC designation awarded to multi-employer plans that have less than 65% funding.
This summer, Central States is expected to unveil details of its bailout plan that may mean benefit cuts for both active employees and retirees. “Our goal is to stabilize the central states pension fund so that we can continue to pay benefits to our participants now and for years to come,” the website says.
Any rescue plan would not go into effect until next year.
Flagship pick for a tricky problem
Mr. Feinberg, a skilled attorney who is one of the nation’s leading experts in mediation and alternative dispute resolution, is viewed by many in the industry as a reasonable choice for what he admits is a “very, very challenging task.” .
He has had several prior federal appointments, including Special Master for TARP Executive Compensation in the aftermath of the financial crisis, Administrator of the Gulf Coast Claims Center after the Deepwater Horizon oil spill, and Special Master of the Federal Victims’ Compensation Fund of the 11 of September. He also administered victim compensation and memorial funds after the Boston Marathon bombings and the Virginia Tech shootings. He will take on this new pro bono role.
More information on the proposed regulations and temporary regulations is available online. The related income procedure, detailing the application requirements, is also available online. The public comment period ends on August 18, 2015.
