Treasury Rejects Benefits Cuts for Automotive Industries Pension Plan

The US treasury has rejected the Automotive Industries Pension Plan’s application for benefits reductions under the Multiemployer Pension Reform Act (MPRA).

The Treasury Department said that, after reviewing the application and consulting with the Pension Benefit Guaranty Corporation (PBGC) and the Secretary of Labor, the fund had used unreasonable assumptions in determining the proposed benefit suspensions.

Specifically, the Treasury concluded that the mortality rate assumption, the assumption regarding the rate at which married participants will elect a joint and survivor benefit, and the assumption regarding the probability of benefit commencement of terminated vested participants were not realistic under the standards in the MPRA regulations.

“Because the application uses projections that rely on assumptions that are not reasonable,” said the Treasury in its rejection letter to the fund, “it fails to demonstrate that the proposed suspension is reasonably estimated to achieve, but not materially exceed, the level that is necessary to avoid insolvency.”

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The Treasury also faulted the fund for using assumptions that contradicted its own data. For example, the fund based its cash flow projections on the assumption that terminated vested participants over age 70, who have not yet started taking benefits, will never do so. However, based on the information provided by the fund, the Treasury pointed out that terminated vested participants over age 70 do, in fact, begin taking benefits at varying rates at and beyond the age of 70. It also found that more than 200 terminated vested participants over the age of 70 were expected to begin taking benefits during the next five years.

The fund also assumed that 100% of married participants would elect a joint and survivor annuity available to them, without providing support for this assumption in its application. When asked by the Treasury Department to provide supporting data, the fund indicated that only 42% of married participants elected joint and survivor annuities during the five previous years. Additionally, the Treasury said the fund used an adjusted version of a standard base mortality table for determining current mortality rates, but did not provide support for the adjustment.

The Treasury also indicated the fund was using other questionable methods for its actuarial assumptions, but did not specify them as they were irrelevant to the application.

“As the MPRA case team has previously explained to you and your representatives,” said the Treasury, “the application includes a number of other actuarial assumptions and methods that have raised concerns, but that are not relied upon as a basis for Treasury’s decision to the deny the application. Treasury remains willing to discuss these issues with you further.”

In its original application, which was submitted in September 2016, the fund said it would become insolvent by 2030 without the suspensions.

Tags: automotive, married participants, PBGC, Pension, Treasury

Pennsylvania’s Auditor General has lambasted the state’s Public School Employees’ Retirement System (PSERS) for paying fees that were “woefully unfair to taxpayers and PSERS members.”

The findings come from Auditor General Eugene DePasquale’s recently released 151-page audit report of PSERS, which covers July 1, 2013, to March 31, 2017.

“One of my most significant concerns from this audit is that PSERS doesn’t seem to think spending more than $416 million on investment management fees in 2016 is a big deal,” he said. “It is mind-numbing that they want a pat on the back for reducing the fees from $441 million in 2015.

In 2000, PSERS was overfunded by 24% and remained above 100% funded until 2003, according to the auditor general’s office. As of June 30, 2016, PSERS was down to 57.3% funded with an unfunded liability of $43 billion, and invested assets of $49.2 billion.

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“There should be a never-ending focus on driving the fees paid by PSERS to the absolute lowest level possible,” DePasquale said, noting, “Every investment fee dollar saved remains in the pension fund for the benefit of the retirees and the accrued savings of the taxpayers.”

But PSERS defended the investment fees it pays, and shot back at the “unfair” accusation, calling it “unsubstantiated and untrue.” It said that over the past 17 years, the fund had benefited from an additional $12.1 billion in incremental performance that would not have been possible without active management.

It also said that for every $1 spent on investment management fees during the past 17 years, active managers returned $3 in excess performance over their benchmarks.

“PSERS hires top-tier investment managers for top-tier performance because the beneficiaries (and taxpayers) deserve the best,” the fund said in a statement. “Hiring the second- or third-best may be penny wise, but it is pound foolish, as those managers generally don’t deliver.”

PSERS also said that it “hears the drum beat for lower fees and continues to aggressively negotiate fees to obtain a fair, equitable agreement with these investment managers.” It added that, from PSERS viewpoint, the beneficiaries, and taxpayers by extension, are $12 billion better off today relative to cheaper, passive alternatives.

Tags: auditor, fees, PSERS