The Treasury Department rejected a plan Friday that would have substantially cut pension benefits for nearly 300,000 former and current truckers and their family members.
The proposal from the Central States Pension Fund, one of the largest multi-employer plans in the country, was the first test of a 2014 law that allowed financially distressed multi-employer plans to shrink benefits for retirees even if the fund had not yet run out of money.
The rejection buys more time for the retirees, who would have seen their pension payments severely cut. But with the fund still on pace to become insolvent within 10 years, workers and retirees are still at risk of facing major cuts. And retirees in other plans that have applied to the Treasury for reductions could still see their benefits reduced if their proposals are approved.
People on all sides of the issue are under pressure to come up with a solution for the Central States fund, which manages benefits for 407,000 workers and retirees. Consumer advocates and members of the plan say they hope lawmakers will support alternative legislation that could improve the fund in a way that is less painful for retirees.
“We are thrilled that retirees now can sleep knowing that their pensions are not going to be cut, but we still know there has to be a long-term solution,” said Karen Friedman, executive vice president of the Pension Rights Center. “And this is going to put pressure on Congress to come up with that solution.”
Under the current law, leaders of the pension fund could come up with another proposal for reducing benefits that would meet the requirements set by the law. But with the fund set to become insolvent by 2025, officials may need to act quickly.
Thomas Nyhan, executive director of the Central States Pension Fund, said in a statement that he was disappointed with the decision and is considering what the fund’s next steps would be. “We believe the rescue plan provided the only realistic solution to avoiding insolvency,” he said.
However, Kenneth Feinberg, the special master appointed by Treasury to review the proposal, said Friday that he rejected the changes because they would not have done enough to improve the financial health of the pension fund. “We at Treasury do not believe that the plan, as submitted, will reasonably avoid insolvency,” Feinberg said during a press call Friday.
In a letter to the pension fund, Feinberg questioned the 7.5 percent average annual investment returns projected by the plan, calling the assumptions “significantly optimistic.” He said the projections were high because they were based on a 50-year time horizon, but instead should have focused on near term performance. The projections also should have accounted for the fact that benefits would not be easily decreased later if the projections fell short.
Feinberg also said he rejected the proposal because the cuts would not have been “equitably distributed” across all participants because of the way workers were classified. In particular, some retirees who worked for the United Parcel Service would have been subject to smaller cuts than others who also worked for UPS because of special protections.
Another issue he found was how the cuts were explained to retirees. Feinberg said the letters that members received were not clear enough to help them understand how they would be personally affected by the cuts. Feinberg said the average person would struggle to understand the technical language used in the notices without more explanation.
While the Central States’ plan did not go through, that does not mean that other pension plans applying to cut pension benefits will also have their proposals rejected, Feinberg said. About 1 million workers and retirees are covered by pension plans that are at risk of running out of money over the next two decades, according to estimates from the Pension Benefit Guaranty Corporation, the insurance agency that backs private pension funds. At least three other plans have already applied to Treasury to cut benefits and he said some of them may meet the requirements set by the law.
But it’s the Central States plan, which pays out $2.8 billion a year in benefits, that poses a major threat to the PBGC. If the pension plan goes under, the insurance fund backing multi-employer pension plans could be overwhelmed. With about $2 billion in assets, that fund is also set to become insolvent in about 10 years.
Now that Feinberg has rejected the Central States proposal, consumer advocates and members of the plan say they hope lawmakers will come up with alternative legislation. “Today’s decision proves that [the Multi-Employer Pension Reform Act] … was the wrong approach,” Sen. Ron Wyden (D-Ore.) said in a statement Friday.
One bill introduced by Democratic presidential candidate Bernie Sanders (Vt.) would call on the government to provide assistance for troubled plans. Another bill introduced this week would require pension executives to face pay cuts proportional to any reductions being proposed for retirees. But it’s not clear how likely it is that either of these bills will become law.