Treasury Department Gives Thumbs Up to Second Pension Rescue

By
David B. Brandolph

A pension fund in Nashville is now the second plan covering unionized workers to receive
Treasury Department approval to cut members’ benefits.

The department, in a
letter dated July 20, approved the United Furniture Workers Pension Fund A’s application
under the Multiemployer Pension Reform Act, also known as the Kline-Miller Act. That
law was designed to rescue financially troubled plans from insolvency. The Cleveland-based
Iron Workers Local 17 Pension Fund is the only other union plan that’s received Treasury
permission to cut participant benefits.

The Furniture Workers fund’s proposal is the first under the MPRA to have its plan
partition request get conditional
approval from the federal Pension Benefit Guaranty Corporation, which guarantees a minimum
benefit to plan participants. If the partition is approved as part of a vote by plan
members, the plan would be divided into two plans–the original plan and a successor
plan–with the PBGC providing financial assistance to the successor plan.

The successor plan would consist of the guaranteed benefit liabilities of vested terminated
participants–those no longer working but not yet entitled to benefits–and also more
than half of the benefit liabilities owed to retirees, beneficiaries, and members
receiving disability retirements.

“Without the relief spelled out in the fund’s proposal, the fund would run out of
money in 2021,” and its participants would be entitled to much lower benefits under
the PBGC’s guarantee, Kyle Flaherty, the plan’s attorney, told Bloomberg BNA July
21. Under the proposal, neither disabled participants nor participants age 80 and
over will have any cuts, and retirees who are age 75 to 79 will have their cuts limited,
said Flaherty, a partner at Bryan Cave in New York.

Under the proposal, 71.5 percent of the fund’s 9,896 participants won’t receive any
cuts and only about 6 percent will have cuts of more than 10 percent. The cuts will
be the steepest for approximately 295 members who would have their accrued and previously
protected benefits cut by 30 percent or more.

“This is why we need to get a new better solution to fix underfunded plans because
otherwise these plans are being fixed on the backs of retirees, which is grossly unfair
and untenable,” Karen Friedman, executive vice president of the consumer advocate
Pension Rights Center in Washington, told Bloomberg BNA July 21. The retirees want
a moratorium on these approvals until a better solution is found and their voices
are heard, she said.

The application Treasury approved was the fund’s second bite at the apple, as the
fund’s trustees had withdrawn its original petition and resubmitted a new application
with adjustments.

“I think we’re starting to see some stability in what applicants and stakeholders
can expect to see in the process–even though not everyone agrees with Treasury’s
interpretations,” Dominic DeMatties, partner with Alston & Bird in Washington, told
Bloomberg BNA July 21. When Treasury determines that an application can’t be approved,
it’s providing sufficient feedback to allow applicants that are able to and who so
choose to submit a revised application that can be approved, said DeMatties, who previously
served as an attorney-adviser in Treasury’s Office of the Benefits Tax Counsel.

Plan trustees should now be able to use the existing record of the differences between
initial applications and revised applications in the case of the approvals to improve
their chances of having their applications approved on the first try, he said.

Membership Vote Next

The next step for the fund is to submit the proposal to cut benefits and partition
the plan to a mail-in vote of its membership under a process that’s expected to take
about six weeks to complete. The proposal will be considered approved unless a majority
of participants vote to reject it.

Participants who don’t vote will be counted as having approved it. If a majority of
those who cast ballots vote to reject the proposal but don’t constitute a majority
of all participants—both voting and non-voting—the plan would be approved.

To contact the reporter on this story: David B. Brandolph in Washington at
dbrandol@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at
jmeyer@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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