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The Teamsters Central States, Southeast and Southwest Areas Pension Plan's proposed restructuring would slash the Rosemont, Illinois-based multiemployer plan's benefit obligation by 22.6%, or $11 billion, if approved by federal regulators.
Central States' multiemployer pension plan was only 39% funded at the end of 2013, with $47.9 billion in benefit obligations and just $18.7 billion in assets, according to a report issued Monday by New York-based Moody's Investors Services Inc. The plan's net assets fell to $17.8 billion as of March 31, 2015, due primarily to poor investment performance.
Central States' plan currently provides pension benefits to more than 200,000 retirees with another 130,000 eligible to receive future benefits, but has only 68,000 active participants. The plan is projected to become insolvent by 2026.
Last month, Central States' board of trustees submitted a proposal to the U.S. Treasury Department to rescue the pension plan under the Multiemployer Pension Reform Act of 2014.
Under the proposed rescue plan, active participants would earn pension credits at a rate of 0.75% of contributions, compared with the current rate of 1.0%. The rescue plan would also gradually raise Central States' early retirement age from 62 to 65, and reduce benefits for “orphans,” which are participants and their beneficiaries whose employers failed to pay their full withdrawal obligations.
According to documents published in September by Central States following the announcement of the rescue plan, orphans comprise approximately 12% of Central States' total plan participants.
Central States' said in documents posted to a dedicated website that the rescue plan is projected to be implemented on or around July 1, 2016, assuming regulatory approval.
Moody's noted in its report that Central States' struggles are hardly unique among multiemployer pension plans. An estimated 124 of the largest multiemployer plans in the United States were collectively underfunded by $318 billion as of Dec. 31, 2013, according to the report, with 13 of those plans less than 40% funded.
“We expect that more applications will be filed seeking benefit reductions given that there are many other MEPPs in trouble,” Wesley Smyth, a New York-based vice president and senior accounting analyst at Moody's, wrote in the report.
Hit by a downturn in the equities markets and falling interest rates that boosted the value of liabilities, the funded status of very large pension plans slipped in September, according to a Milliman Inc. survey released Friday.