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In a major victory for multiemployer pension plan participants, the U.S. Treasury on Friday denied an application by the Teamsters' Central States Pension Fund to slash benefits for hundreds of thousands of plan members.
The move could spare 272,600 participants of the Central States, Southeast and Southwest Areas Pension Fund from proposed benefit reductions.
“Today I notified the Central States Pension plan that its application to reduce pension benefits to hundreds of thousands of retirees was denied because the application that was submitted did not meet the requirements of federal law, the Kline-Miller statute, that governs Treasury's evaluation and analysis of all such private multiemployer pension plans,” Kenneth Feinberg, special master for the Treasury Department's implementation of the Multiemployer Pension Reform Act, said during a conference call with media on Friday.
“We at Treasury have worked closely with the PGBC and the Department of Labor over the past many months to review the application in its entirety. It is unanimous that the application fails to meet the statutory prerequisites,” he said.
In a statement Friday, the Central States Pension Fund said it is disappointed with Treasury's decision and will “carefully consider the most appropriate next steps.” Among them, the plan could reapply and propose larger cuts.
“Although the decision by our trustees to file this application under provisions of the Multiemployer Pension Reform Act of 2014 was gut-wrenching, we are disappointed with Treasury's decision, as we believe the rescue plan provided the only realistic solution to avoiding insolvency,” the pension fund said.
“While today's decision by the U.S. Department of the Treasury to deny Central States Pension Fund's rescue plan will temporarily spare many from cuts to their hard-earned benefits in the short-term, it also sentences participants to an insecure retirement where massive benefit cuts are inevitable,” Randy G. DeFrehn, Executive Director of the National Coordinating Committee for Multiemployer Plans, said in a statement Friday.
The national Teamsters union applauded the decision.
“On behalf of our union and the more than 400,000 retirees and participants in Central States Pension Fund, I would like to thank Mr. Feinberg and the Department of Treasury for denying these massive cuts that would destroy so many lives. We worked with thousands of retirees to educate Treasury and Congress on the devastating impact of the proposed cuts,” Teamsters General President Jim Hoffa said in a statement. “This decision means that there won't be any cuts to retirees' pensions this July or the foreseeable future. We will find a solution to this problem that will allow members and retirees to continue to retire with dignity.”
The Central States' application was denied for three reasons, Mr. Feinberg said: It failed to show that the proposed benefit cuts would prevent the plan from becoming insolvent. It also failed to demonstrate that the reduction would be “equitably distributed among the retiree population,” Mr. Feinberg said.
Finally, the notice sent to the pension plan participants announcing the proposed cuts was not “readily understandable,” but was instead “technical” and “overly complex,” Mr. Feinberg said.
The Treasury on Friday sent letters to the Central States Pension Fund and members of the U.S. House of Representatives, announcing the decision.
Mr. Feinberg also cautioned that the Treasury's decision pertains only to the Central States' application, and “is not to say that other private multiemployer plans that might be submitted to Treasury pursuant to this law will meet a similar result.”
Five additional applications by other pension funds seeking to reduce benefits under the Kline-Miller law have been submitted, according to the Treasury's website.
In September, the Central States Pension Fund filed the proposal with the Treasury Department to cut the benefits received by 272,600 of the plan's more than 400,000 participants.
If approved, the cuts would have been allowed under a 2014 federal law meant to prevent the collapse of financially troubled plans and a Pension Benefit Guaranty Corp. insurance program that guarantees a portion of participants' promised but unfunded benefits.
At the end of 2014, the Central States pension plan had $35 billion in liabilities and just $17.8 billion in assets.
The Treasury Department had until May 7 to act on the Central States plan to cut benefits.