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Teamsters' move to cut benefits offers hope for flagging multiemployer pensions

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The Central States Teamsters pension plan, the first to tap a relatively new federal law that allows financially troubled multiemployer plans to cut participants' benefits, is breaking ground that other plans are expected to follow.

The Central States proposal comes as lawmakers continue work on ways to aid multiemployer plans, which had a funding shortfall of $125 billion as of June 30, a Milliman Inc. analysis of nearly 1,300 plans found.

Under the Central States, Southeast and Southwest Areas Pension Fund's proposal, filed in September with the U.S. Treasury Department, many of the plan's more than 400,000 participants would have their benefits reduced under the Kline-Miller Multiemployer Pension Reform Act of 2014.

Benefit cuts would vary depending on participants' status. For example, those who worked for employers who left the plan without making required withdrawal liability payments would see their promised benefits cut to 110% of the maximum guaranteed by the Pension Benefit Guaranty Corp. For 2016, that maximum annual guarantee is $12,870.

Active plan participants would see future benefit accruals cut to 0.75% of contributions made by their employers, down from the current 1% credit, thus reducing their pension payments.

Still, benefits for retirees 80 and older will not be reduced, while benefits paid to retirees age 75 to 79 are partially protected from cuts under the 2014 law.

Central States, one of the nation's largest and most financially troubled multiemployer plans, said unless participants' benefits are cut, it is projected to become insolvent in just over a decade. It had $35 billion in liabilities and $17.8 billion in assets at the end of 2014.

Other financially troubled multiemployer plans also are expected to seek Kline-Miller protection.

“I expect there will be more,” said Josh Shapiro, a senior actuarial adviser at Groom Law Group Chtd. in Washington. “Some plans are waiting for final regulations before proceeding, and others are waiting to see how the Treasury Department reacts” to the Central States' proposal.

The 2014 law was sparked in part by a U.S. Government Accountability Office projection that the PBGC's multiemployer pension plan insurance program would go broke in 10 to 15 years without congressional action.

While last year's law allows plans to cut participants' benefits to stay solvent, it does not address another huge and related problem: the inability of many plans to attract new employers.

A huge deterrent for employers is a provision in a 1980 law that requires employers withdrawing from underfunded multiemployer plans to pay their share of the plans' promised but unfunded benefits, a withdrawal liability tab that can easily exceed an employer's net worth.

Withdrawal liability “is an obstacle to keeping employers in the plans and attracting new employers,” said Diane Gleave, senior vice president and regional manager at The Segal Co. in New York.

Multiemployer pension legislation being developed would eliminate that withdrawal liability for benefits earned under a new plan design.

While the details of the legislation continue to be hammered out, observers say the proposal will be based on recommendations by a panel of the National Coordinating Committee for Multiemployer Plans, which represents many of the nation's 1,400 multiemployer plans.

The panel recommended a new multiemployer plan design that would eliminate withdrawal liability for future benefits. Plans that fell below a funding level of 120% could reduce participants' benefits and increase employer contributions. Withdrawal liability would still apply to benefits already earned.

“The risk no longer would be all on the employer,” said Dana Thompson, assistant director of legislative affairs with Sheet Metal and Air Conditioning Contractors' National Association in Chantilly, Virginia.

“Employers could provide employees with lifetime income — in an affordable way — and without taking on the financial exposure of withdrawal liability,” Mr. Shapiro said.

When the new legislation will emerge is not clear. “There have been a lot of distractions” for lawmakers, Mr. Shapiro said, including the drafting and passage of budget legislation to maintain government's borrowing authority.

Still, Mr. Shapiro said, the proposal is “alive and kicking and has the interest of many lawmakers.”

The proposal “is far from forgotten,” said Randy DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans in Washington.

Still, Mr. DeFrehn acknowledges, winning congressional attention, let alone approval, is a significant challenge.

“There is a lot of turnover on Capitol Hill, so you have to do a lot of educating,” he said.

Some are optimistic that lawmakers eventually will approve the multiemployer plan changes.

“There is a headwind for a legislative fix,” Segal's Ms. Gleave said. Like the multiemployer legislation Congress passed last year, such a proposal could be attached to a broader “must-pass bill,” she said.