- Two-thirds of 400,000 members would have seen reductions
- Central States says without change, it'll be insolvent by 2026
U.S. federal mediator Kenneth Feinberg rejected the Central States Pension Fund’s rescue plan that would have cut benefits for more than 250,000 working and retired union members.
Feinberg’s decision upholds retirement obligations to members of the International Brotherhood of Teamsters. About two-thirds of the 400,000 members would have had their pension checks reduced under the rescue plan, some by 50 percent or more, documents show. Central States, one of the nation’s biggest multiemployer pension funds, pays out more than $2.8 billion in benefits a year.
The decision could dim the chances for multiemployer pension funds to avoid insolvency by slashing benefits. Central States projects that, without the cuts, it will be out of funds by 2026 because it’s currently paying out $3.46 for every $1 it takes in. Even under the plan, the fund gave itself a coin-flip’s chance of surviving past 2064, according to its proposal.
“That specific plan submitted, pursuant to Kline-Miller, is flawed,” said Feinberg, the Treasury Department’s special master for the implementation of the Kline-Miller Multiemployer Pension Reform Act. He said that Treasury is reviewing other rescue plans submitted by other pension funds.
The Central States plan relied on flawed investment and actuarial assumptions, and failed to show that it would save the fund, Feinberg said. It didn’t make equitable cuts and wasn’t deemed to be readily understandable for the average plan participant.
Central States, based in Des Plaines, Illinois, submitted its plan to reduce benefits under the 2014 Kline-Miller act, which was designed to cut payouts at ailing pension funds serving multiple employers to ensure their survival. Feinberg had said that he was primarily required to weigh three questions: Did Central States exhaust all other alternatives? Are the benefits cuts equitable? And will they preserve the fund?
“We are disappointed with Treasury’s decision, as we believe the rescue plan provided the only realistic solution to avoiding insolvency,” Tom Nyhan, Central States’ executive director, said in an e-mailed statement. Central States will carefully consider next steps, he said.
While many pension funds are struggling as fewer workers pay in and Baby Boomers retire, multiemployer funds have the added burden of looking after so-called orphan retirees from bankrupt member companies. With pension contributions typically considered unsecured liabilities in Chapter 11 proceedings, funds such as Central States often receive little or no money to cover retirement payouts.
“While we expect that this will come as a relief to these participants, our decision does not resolve the issues threatening their pension benefits,” Treasury Secretary Jack Lew said in a letter to members of Congress. “The Central States plan, like a number of other multiemployer plans, remains severely underfunded and is projected to become insolvent within the next 10 years.”
Teamsters General President Jim Hoffa said Friday’s decision protects pensions for the “foreseeable future.” He said in an e-mailed statement that the union will work to find a solution to funding shortfalls to “allow members and retirees to continue to retire with dignity.”