President Joe Biden on Thursday announced that the Pension Benefit Guaranty Corp. has approved $36 billion in federal assistance to shore up a massive union multiemployer pension plan facing steep cuts.
Teamsters Central States, Southeast & Southwest Areas Pension Fund, Chicago, will receive the funds under the Special Financial Assistance Program. The program, created by the American Rescue Plan Act that Democrats passed in March 2021, was designed to shore up struggling multiemployer pension plans through 2051. The PBGC estimates the total cost of the program will range from $74 billion to $91 billion.
The Central States Pension Fund covers more than 350,000 union workers and retirees who were facing estimated benefit reductions of roughly 60% in the next few years, according to a White House news release.
The pension plan had a funding ratio of 18% with $57.2 billion in projected benefit obligations as of Jan. 1, 2021, according to the plan’s most recent Form 5500 filing. As of Dec. 31, the plan had $10.1 billion in assets, the filing showed.
The PBGC approved the first SFA application in December 2021 and since then has awarded funds to 36 other struggling multiemployer plans. But Thursday’s announcement is by far the largest. As of Dec. 1, the PBGC had approved just over $8.9 billion in SFA funds to cover roughly 193,000 workers, retirees and beneficiaries.
The plan covered 1,649 participants in the sheet metal trade. About 850 of them saw their benefits cut an average of 24% in May 2020 under the terms of the Multiemployer Pension Reforms Act of 2014. SFA will pay $28.8 million to make up the shortfall.
The MPRA allowed trustees of multiemployer plans to submit an application to the Treasury Department to reduce pension payouts if such a reduction is necessary to prevent the fund from running out of money.
The Pension Benefit Guaranty Corporation, under the direction of the Biden administration, has published the final rule implementing the American Rescue Plan Act of 2021’s Special Financial Assistance program.
Initially, the interim final rule applied a single rate of return included in the statute that is higher than could be expected for SFA funds given that they were required to be invested exclusively in safe, but low-return, investment-grade fixed-income products. The final rule uses two different rates of return for SFA and non-SFA assets, so that the interest rate for SFA assets is more realistic given the investment limitations on these funds.
Another change in the final rule allows up to 33% of SFA to be invested in return-seeking assets that are projected to allow plans to receive a higher rate of return on their investments than under the interim final rule, subject to certain protections. Namely, this portion of plans’ SFA funds generally must be invested in publicly traded assets on liquid markets to ensure responsible stewardship of federal funds. These return-seeking investments include equities, equity funds and bonds. The other 67% of SFA funds must be invested in investment-grade fixed-income products.
The third major change is meant to ensure plans can confidently restore both past and future benefits and enter 2051 with rising assets. PBGC designed the final rule to ensure that no “MPRA plan”—a group of fewer than 20 multiemployer plans that remained solvent by cutting benefits pursuant to the Multiemployer Pension Reform Act of 2014—was forced to choose between restoring its benefit payments to previous levels and remaining indefinitely solvent. Instead, the final rule ensures that all MPRA plans avoid this dilemma, supporting them with enough assistance so that these plans can both restore benefits and be projected to remain indefinitely solvent going into 2051.
According to PBGC leadership, these changes collectively ensure that all plans that receive SFA are projected to be solvent and pay full benefits through at least 2051.
Five years ago retired coal miners traveled to Washington, D.C. to lobby lawmakers to put in place a federal safety net in case the United Mine Workers of America (UMWA) pension fund fails. Coal plant closures and company bankruptcies have sent the pension fund to the edge of collapse. In October, 2019 Murray Energy, the last major company propping up the dwindling fund, also went bankrupt and the prediction was insolvency in FY23.
By the April 15, 2022 deadline, the plan submitted their 5500 form for the year ended 6/30/21 showing only 68 active participants remaining and providing an idea of how much more taxpayers will now be on the hook for on top of what appears to be the $330 million that came in during the plan year.
The Pension Benefit Guaranty Corporation has approved applications submitted to the Special Financial Assistance Program by five more struggling multiemployer plans in May alone. The PBGC has now approved more than $6.2 billion in bailout funds to plans covering close to 120,000 workers and retirees.
The PBGC said it will provide $210.4 million in SFA funding to the Local 365 UAW Pension Fund Pension Plan of Englewood Cliffs, New Jersey, which covers 3,736 participants in the manufacturing industry.
The Local 365 UAW Plan became insolvent in December 2020, at which time the PBGC began providing the plan with financial assistance. As required by law, the plan reduced participants’ benefits to the PBGC guarantee levels, which were approximately 20% below the benefits payable under the terms of the plan.
The American Academy of Actuaries presents this summary of select significant regulatory and legislative developments in 2021 at the state, federal, and international levels of interest to the U.S. actuarial profession as a service to its members.
The Academy focused on key policy debates in 2021 regarding pensions and retirement, health, life, and property and casualty insurance, and risk management and financial reporting.
Responding to the COVID-19 pandemic, addressing ever-changing cyber risk concerns, and analyzing the implications and actuarial impacts of data science modeling continued to be a focus in 2021.
Practice councils monitored and responded to numerous legislative developments at the state, federal, and international level. The Academy also increased its focus on the varied impacts of climate risk and public policy initiatives related to racial equity and unfair discrimination in 2021.
The Academy continues to track the progress of legislative and regulatory developments on actuarially relevant issues that have carried over into the 2022 calendar year.
A Teamsters pension fund has applied to the Pension Benefit Guaranty Corporation for a bailout after a circuit court denied its appeal in a lawsuit seeking $58 million in withdrawal liabilities from C&S Wholesale Grocers Inc.
The New York State Teamsters Conference Pension and Retirement Fund, a multiemployer plan based in Syracuse, New York, has applied to PBGC for special financial assistance under the American Rescue Plan Act to improve its financial health and restore benefits previously suspended under the Multiemployer Pension Reform Act. The pension fund said the restoration of suspended benefits would be retroactive and prospective, which means participants would be repaid for benefits reduced previously, while also having benefits restored to pre-suspension levels.