In the aftermath of the rejection of the Central States Southeast and Southwest Areas Pension Plan (“Central States”) application to reduce core benefits by Treasury Special Master Kenneth Feinberg, it is critical that contributing employers to multi-employer pension funds recognize the harsh reality that help to those funds will not be forthcoming from the government in at least the near term.

Although Feinberg was careful to emphasize that the rejection of the Central States application was limited to Central States and that pending applications by other funds would be considered independently, the text of the May 6, 2016 rejection letter belies that statement.

Of the three criteria which Central States did not meet, only one could possibly be remedied; that Notices must be written so as to be understood by the average plan participant.  Ironically, the majority of plan participants who received drafts of the Notices in a sampling before Central States filed its application stated that it was understood!

Particularly troublesome was the finding that the proposed benefit suspensions were not reasonably estimated to allow Central States to avoid insolvency within the projected 10 years.  It did not take the plan “off the path of insolvency.”

Treasury criticized the assumptions used in the actuarial projections declaring that they contained a bias because they were “significantly optimistic.”  Specifically, the 7.5% annual investment rate of return assumptions failed to adequately take into account relevant current economic data and exceeded longer-term expected rates of return.

Rather, Treasury opined that the estimated 10- year average rate of return should have been 6.43% reflective of the Horizon Survey of investment forecasts.  However, adoption of that rate would have resulted in even deeper reductions in core benefits to participants.

Significantly, a review of several other multi-employer funds reveals that an investment return assumption of 7.50% is not uncommon.  Based on Treasury’s “scrutiny,” it seems probable that the other pending applications will suffer a similar fate to Central States.

Although there have been cries seeking a quick passage of some form of legislation (not fully articulated) to help funds such as Central States and their participants, the current Congress is unlikely to do so in an election year.

Tags: Central States, Kenneth Feinberg, Kline-Miller
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Photo of Paul A. Friedman Paul A. Friedman

Paul A. Friedman is a principal in the White Plains, New York, office of Jackson Lewis, P.C. His legal practice is focused on ERISA litigation, labor and Multiemployer Pension Plan Amendments Act (MPPAA) arbitrations and is well grounded in his earlier experience as…

Paul A. Friedman is a principal in the White Plains, New York, office of Jackson Lewis, P.C. His legal practice is focused on ERISA litigation, labor and Multiemployer Pension Plan Amendments Act (MPPAA) arbitrations and is well grounded in his earlier experience as outside counsel to numerous union pension funds. During years of litigating cutting-edge ERISA issues before the U.S. Department of Labor, U.S. district courts, bankruptcy courts and courts of appeal on behalf of employers, plan sponsors and ERISA plan fiduciaries, Paul sometimes finds his own prior landmark decisions cited to him.

For Paul, MPPAA has all the excitement of a trial – it is an intricate and counter-intuitive statute. He has first chair experience in more than 40 jury trials and has handled hundreds of arbitrations and bench trials on all aspects of ERISA. ERISA knows no organizational bounds and so Paul has defended cases for clients representing many industry sectors, including life sciences, financial services, energy, hospitality, and construction.

Paul has served as litigation counsel for numerous multi-employer and single-employer employee benefit plans in ERISA matters, where he:

  • Devotes his practice mainly to the defense of employers, plan sponsors, fiduciaries, and financial institutions against claims brought under ERISA by benefit funds, plan beneficiaries, and the U.S. Department of Labor. He handles issues related to breach of fiduciary duties, excessive plan expenses, benefit entitlement issues retiree health benefits, and functional fiduciary liability
  • Successfully represents companies as plan sponsors against claims of participants and qualified beneficiaries for violations of COBRA
  • Defends employers that have been assessed withdrawal liability under MPPAA or have experienced increased liability due to the passage of the Pension Protection Act of 2006
  • Performs employee benefits due diligence for buyers or sellers in mergers and acquisitions transactions, filling a knowledge gap between labor and financial counsel, ensuring that buyers and sellers price-in or mitigate against ERISA violations and potentially millions of dollars in liabilities
  • Conducts comprehensive strategic reviews of clients’ current operations to avoid or mitigate against exposure to ERISA enforcement and risk of civil and criminal charges brought against company executives, principals, and trustees

In the last decade, he has developed a business model for use by businesses across a broad spectrum of ERISA issues from the beginning of the ownership of these companies to their sale. He also provides benefits guidance to Mergers and Acquisitions counsel in complex transactions.

Outside of work, Paul is an ardent Civil War and World War I buff. He expressly enjoys traveling to Europe and touring World War I battlefields.

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