We have been watching, warning and posting about the saga of the troubled Central States Pension Plan (“CSPP”). See The Gift-Giving Season? Three “Game-Changing” Employment Developments Impacting Manufacturers, Teamster Plan to Cut Pensions Presents Significant Issues for Manufacturers, and A Troubling Future Part One: Teamsters’ Pension Rescue Plan. Things were bad. They got worse.
Created in 1955, the CSPP remains one of the largest and oldest multiemployer pension plans in the United States, funding the pensions of 400,000 active and retired Teamsters. Shockingly, with the decline in the unionized trucking industry, only 15 percent of those with vested pension benefits are actively employed. The rest are all inactive or retired. This imbalance (the pensions of all 400,000 participants being funded by assets and contributions on behalf of a mere 60,000 active employees) has put the CSPP under severe financial stress. Trustees estimate that the CSPP will become insolvent in less than nine years. Currently, the CSPP is $17.5 billion short of the funds it needs to cover vested benefits. (That works out to $47,750 for each participant.)
To make matters worse, the Pension Benefit Guarantee Corporation (“PBGC”), the “ultimate insurer” of the multiemployer pension plans in the U.S., does not have the resources to pay even the “minimum benefits” required if the CSPP were to become insolvent.
Mindful of the plight of the CSPP and other funds, in late 2014, Congress took controversial action. Moving at warp speed in eight days, Congress adopted the 2014 Multiemployer Pension Reform Act – An Act which would permit troubled multiemployer pension funds to seek permission to cut the vested benefits of retirees. In essence, Congress plotted a roadmap which could permit distressed pension plans to reduce the benefits being paid to retirees in order to avoid insolvency. In September 2015, the CSPP became one of the first plans in the United States to take advantage of this new law.
Following a series of public hearings and submission of numerous comments, in May 2016, Special Master Kenneth Feinberg, issued his report rejecting the CSPP “Rescue Plan.” In doing so, Special Master Feinberg relied on four key defects. Read Special Master Feinberg’s Report here. First, in his opinion, the Rescue Plan used an overoptimistic rate of return assumption (the CSPP assumed assets would earn a 7.5% return over the next 50 years). Second, the Plan assumed that all newly hired workers coming into the plan would be age 32, meaning that they likely would not receive benefits (and thus would not deplete assets) for at least 20 years. Third, the impact of the benefit cuts would be harder on some participants than others and the unequal treatment was not justified or explained. Fourth, the submission itself was unduly technical and virtually impossible for the average participant to understand.
Shortly after Special Master Feinberg issued his report, the CSPP announced that it had abandoned efforts to rescue the fund.
While the CSPP may be the largest multiemployer plan facing insolvency, there are others. Five other multiemployer pension plans have benefit reduction plans pending before the Treasury Department, one had its plan rejected and a seventh plan voluntarily withdrew its application. See Applications for Benefit Suspensions.
The number of multiemployer plans seeking benefit reductions under the Multiemployer Pension Reform Act, coupled with Treasury’s failure to approve a single application since the adoption of the Act, strongly suggests that Congress should look for another solution. One might think that a Presidential Election year would be the opportunity to debate these issues, as support from organized labor may be critical to one side or the other and down ballot races. But so far that debate seems lacking. And time may be running out. One pension fund (Road Carriers Local 707 Pension Fund) projects it will be insolvent by February 2017 – just a few days after our new president takes office.