Treasury Department Denies Benefit Suspensions to Central States Pension Funds
On May 6, 2016, the U.S. Department of the Treasury denied the Central States Pension Fund’s (Central States) application for benefit suspension under the Kline-Miller Multiemployer Pension Reform Act of 2014 (MPRA).
What is MPRA?
MPRA was enacted to provide trustees of severely distressed pension funds with additional tools to delay the insolvency of their plans. Currently, the Pension Benefit Guaranty Corporation (PBGC) insures pension funds. When a multiemployer plan runs out of money to pay pension benefits, the PBGC steps in to loan the pension plan money to provide a minimum guaranteed benefit to its participants. The minimum guaranteed benefit under the PBGC is generally much less than what a participant would receive if the plan were adequately funded. Therefore, the longer trustees can keep their plans from becoming insolvent, the better for participants. One of the controversial tools in MPRA allows trustees to make benefits cuts before a plan becomes insolvent in order to extend the life of the plan. Central States was the first plan to apply for the ability to reduce benefits under MPRA.
Why should we care about Central States?
The PBGC, which is the safety net for all of our plans, is also facing insolvency. Central States is the largest of the troubled pension plans. On the one hand, 270,000 participants in Central States avoided having their benefits cut this year, showing that the Department of the Treasury set the bar high for Trustees to demonstrate they meet the requirements of MPRA. On the other hand, delaying PBGC insolvency for Central States is not only important for Central States, but also means more of the PBGC’s limited funds could be available for other multiemployer pension plans the PBGC insures. Treasury pointed to Central States’ failure to meet the specific requirements of MPRA as the reason for its denial. Other plans wishing to take advantage of MPRA should review their applications carefully. What the Central States dilemma highlights is the need for Congressional action to address the crisis at the PBGC.
For more information about MPRA, please contact your Trust Fund counsel.
By Kristina Zinnen | June 7, 2016