Finance

Cutting Pension Benefits: MPRA and the Central States Pension Plan

April 6, 2016
By Tim Connor, FSA, EA, MAAA,
Charles Clark,
ASA, MAAA, EA and Paul R. Bonsee

Another of the five key plan issues for 2016 facing multiemployer plan sponsors, administrators and fiduciaries is the impact of MPRA. There are many important details, but here are the highlights and some of the key issues.

The Multiemployer Pension Reform Act (MPRA), enacted on December 16, 2014 allows certain multiemployer defined benefit (DB) pension plans that are projected to become insolvent and therefore have insufficient funds to pay benefits, to apply to the US Treasury Department to reduce participant benefits indefinitely. Retirees in pay status and under the age of 80, as well as current workers and former workers with vested rights who have yet to receive benefits can be affected. The Treasury Department is currently reviewing applications from three multiemployer plans. By far the largest is the Central States, Southeast and Southwest Areas Pension Plan. The plan has close to 400,000 total participants, roughly half of which are currently receiving annual benefits totaling about $2.8 billion. Reported assets were about $18 billion at year-end 2014, estimated to be sufficient to pay approximately 50% of promised benefits. Central States believes it will become insolvent by 2026, hence its application to the Treasury Department under the new law. Treasury must approve or deny Central States’ application by May 7, 2016. Over 2,300 plan participants have taken advantage of the comment period to voice their concerns about the application.

Why So Important – The reason this law is making news is that it is such a radical departure from the past. Prior to the enactment of MPRA in 2014, the anti-cutback provision found in the Employee Retirement Income Security Act (ERISA) precluded the reduction of benefits that participants had earned. However, absent MPRA benefit reductions, the Central States plan is projected to fail and ultimately bankrupt the Pension Benefit Guaranty Corporation (PBGC), which exists to provide some level of benefit protection for multiemployer plans that fail. If the benefit reductions are approved, the sheer number of participants affected will have a seismic impact in the Taft-Hartley world, especially since many benefits would be reduced significantly, with average reductions reported to be about 50% for those who are subject to suspension. Lastly, there could be more multiemployer plans set to apply in the next few years, depending in part on the experience of the Central States plan.  

Repeal Attempts – One or more bills were introduced in the 114th Congress with the intent of removing the ability to reduce pensions or otherwise modify MPRA in different ways.  At the present time however, the bills appear to be going nowhere.  There have been hearings on Capitol Hill with input from interested parties, but the outcome of these hearings and the prospects for further support of these bills through Congress are very unclear at this point. 

What Is to Be Done – Plan sponsors of multiemployer plans need to stay informed not only about the outcome of the Central States application to Treasury, but also to the possibility of other multiemployer plans that may apply. The success of any of the attempts to repeal or change MPRA needs to also be closely monitored. Most of all, the job of keeping plans healthy and adequately funded is more essential than ever, and needs to be executed with careful and constant attention.

For more information, please access the link below or contact Paul Bonsee at paul.bonsee@milliman.com.

http://us.milliman.com/Solutions/Products/Multiemployer-Pension-Funding-Study/

April 6, 2016

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