The US Treasury Department said it has determined that the International Association of Machinists Motor City Pension Plan is eligible to reduce benefits under the Multiemployer Pension Reform Act of 2014 (MPRA).
It is the fourth pension fund to receive approval by the Treasury to reduce the benefits of its plan participants to help stave off insolvency. However, in its Nov. 6 letter to the pension’s board of trustees, the Treasury said the notification is not a final authorization to implement the benefit reduction described in the fund’s application.
“No reduction of benefits can take effect before a vote of the participants and beneficiaries of the plan with respect to the proposed reduction,” wrote Sam Alberts, special master appointed by the Treasury. The letter also said that the MPRA requires the Department of Treasury, in consultation with the Department of Labor, and the Pension Benefit Guaranty Corporation (PBGC), to administer the vote.
Representatives for the pension fund did not respond to requests for comment.
According to the fund’s application for benefits reduction, which was submitted in late March, as of Jan. 1, 2018, the monthly benefit payable to participants or beneficiaries in pay status would be reduced to 110% of the amount of payment the participant or beneficiary would receive from the PBGC. The reduction applies to benefits earned through Jan. 1, 2018, and would begin with the January 2018 payment. The benefit suspension would not affect any other facet of a participant or beneficiary’s benefit other than the monthly payment amount.
Additionally, the foregoing benefit reductions would not apply to any disability benefits in pay status as of January 1, 2018, or to the benefits of any participant or beneficiary who is 80 years old as of Jan. 31, 2018.
The reduction plan also says participants whose benefit is less than or equal to 110% of the PBGC multiemployer guarantee benefit will not have a benefit reduction. Benefits earned after Jan. 1, 2018, will accrue at 0.5% for credited contributions, and participants and beneficiaries who are 75 years old or older would have their monthly benefit reduced by the “applicable percentage.”
The “applicable percentage” is a percentage determined by dividing the number of months during the period beginning with the month after the month in which the effective date of the suspension occurs, and ending with the month during which the participant or beneficiary reaches the age of 80 by 60 months.
In its application, the plan’s actuary projected that, if no further action was taken, the pension would become insolvent by the end of June 2026.
“The amount of reductions is inequitable in that they use age rather than ability to return to work to reduce reductions for age 75+,” wrote plan participant Edward Coombs of St. Petersburg, Florida, in a comment submitted as part of the application. “Younger retirees are more likely to still have a few years left on their mortgage and could be more greatly affected than those over 75.”
Tags: International Association of Machinists Motor City Pension Plan, multiemployer Pension Reform Act, Pension, US Treasury Department