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Newly released regulations the IRS lay out the steps financially troubled multiemployer pension plans must follow when they need to cut participants' benefits in order to survive.
That ability to cut benefits — triggered by numerous warnings from federal agencies that without such authority a chunk of the nation's 1,400 multiemployer plans would fail — is a key provision in legislation Congress passed late last year.
The 2014 law allows participants' benefits to be cut if a plan is projected to become insolvent during a current plan year or any of the next 14 years, or any of the next 19 years if the plan's ratio of inactive participants to active participants exceeds 2-to-1 or if the plan is less than 80% funded.
The law requires the plans to give participants the right to vote on cuts before the benefit reductions can be implemented. However, even if participants reject the cuts, the U.S. Treasury Department can override the vote, permitting the implementation of a benefits suspension plan if a plan is “systemically important” — meaning it poses a very large risk to the Pension Benefit Guaranty Corp., the federal agency that guarantees a portion of participants' promised benefits.
The law left it to federal regulators to lay out procedures for participant votes on proposed benefits, which the IRS did in regulations published in Wednesday's Federal Register.
For example, under those regulations, the Treasury Department is allowed to designate a service provider to handle the vote. For example, multiemployer plans would be required to notify participants that a ballot package on the proposed cuts is being sent to them.
However, service providers — not the plan — designated by the Treasury Department would distribute the ballot packages, tabulate the vote and forward the results to the department.
The Treasury Department, in turn, will then use the information, in consultation with the PBGC and the U.S. Department of Labor, to determine if the a majority of eligible voters rejected the proposed benefit cuts.
Already, one of the nation's biggest and best-known multiemployer plans, the Teamsters Central States, Southeast & Southwest Areas Pension Plan, said “significant and painful retirement benefit reductions must be considered” in order “to prevent a real risk of a total loss benefits.”
At year-end 2014, the plan, which has more than 400,000 participants, had $35 billion in liabilities and just $17.8 billion in assets.
The Treasury Department regulations were issued in both temporary and proposed form. That means the regulations are effective immediately, but could be changed after regulators review comments they receive.
Few multiemployer pension plan participants are very concerned about a 2014 federal law that opens the door for financially troubled plans to cut benefits in order to stay afloat, according to a new survey.