On October 28, 2015, we reported that the Central States Southeast and Southwest Area Pension Fund (“Central States”) — one of the largest multiemployer pension plans in the country — had filed an application with the Department of the Treasury (“Treasury”) seeking to reduce core benefits under the Multiemployer Pension Reform Act of 2014 (“MPRA”) and had sent a notice of the application to its approximately 400,000 participants. Central States was also required to provide participants with an individualized estimate of reduced benefits.
On January 8, 2016, the Iron Workers Local 17 Pension Fund (the “Iron Workers Fund”) — which operates from Cleveland, Ohio — became the second multiemployer pension plan to file an application with Treasury to reduce core benefits. In its application, the Iron Workers Fund trustees advised that the Fund’s actuary had certified that the Fund was in “critical and declining status” for the plan year beginning May 1, 2015. Moreover, without approval of the application, the Fund was projected to become insolvent by 2025.
The application stated that the Iron Workers Fund’s most recent Form 5500 for the plan year ending April 30, 2014 reflected assets of $85.7 million and liabilities of $223.2 million, which means that the Fund had approximately 38 cents to pay for every dollar of vested benefits.
This filing demonstrates that the underfunding plight impacts both large and smaller plans, as the Iron Workers Fund has 2,021 participants of which 641 are active.
With regard to the Central States application, the deadline for the MPRA-required opportunity on the part of participants and beneficiaries to submit comments has been extended until February 1, 2016. In addition, Treasury has announced that public comment sessions would be conducted in regions that would be most impacted by any benefit reduction. Such sessions were scheduled in Greensboro, North Carolina on January 11, 2016 and in Peoria, Illinois on January 14, 2016, with members of the public invited to attend.
Before core benefits can be reduced, Treasury must review the application and has 225 days from the date of receipt of the application to reject it. Otherwise, the application will be considered approved. If Treasury were to approve the application, it would then have 30 days to administer a vote for the participants and beneficiaries on the benefit reduction.
This second filing within less than four months should underscore the need for employers with collective bargaining agreements requiring contributions to multiemployer defined benefit pension funds to be vigilant and proactive. Such employers should conduct an annual “benefits due diligence,” which should take two forms: (1) a review of the pension fund’s annual Form 5500; and (2) an annual request to the pension fund seeking a written estimate of the employer’s withdrawal liability and an explanation of the methodology used in calculating any such withdrawal liability.
We will continue to advise concerning the progress of these two applications and other developing issues involving multiemployer defined benefit pension funds.