Treasury Approves Benefits Reduction for Michigan Pension

The second time has proven the charm for the trustees of the Sheet Metal Workers Pension Fund of Troy, MI: their reapplication to reduce benefits under the Multiemployer Pension Reform Act of 2014 has been approved by the US Treasury Department.

The Treasury has now agreed on benefits reductions for 15 pension plans, while denying just five applications. Three proposed benefit reduction plans are currently under review.

The fund’s actuaries said that as of May 1 the pension was only 40.6% funded, and that it is projected to become insolvent in the plan year beginning May 1, 2033.

According to the fund’s benefit reduction plan, non-active participants who retired before Aug. 1, 2009, and all terminated vested participants, will have their benefits cut by 35%. Non-active participants who retired on or after Aug. 1, 2009 will have their benefits lowered by 30%. For active participants the reduction is 25% for employees who were hired before May 1, 2006. There will be no reduction for those hired on or after May 1, 2006.

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The pension defines active participants as those who have worked at least 435 hours during the plan year ended Apr. 30, 2017 or Apr. 30, 2018, and who have not retired as of Apr. 30, 2018. Non-active participants include terminated vested participants, retired participants, disabled participants, beneficiaries of participants, and alternate payees.

The pension’s original application, had proposed a reduction in monthly benefits on which the revised monthly amount was based on a level accrual rate of $48, multiplied by the years of service earned through Apr. 30, 2019. Participants whose level accrual rate was already less than the $48 level accrual rate would not have had their benefits reduced. The fund withdrew that proposal in October 2018.

Before the Sheet Metal Workers Pension Fund’s reduction plan can take effect, it must first be put before a vote of the participants and beneficiaries of the fund. The vote will be administered by the Treasury Department, in consultation with the Department of Labor and the Pension Benefit Guaranty Corporation (PBGC).

The plan said the suspension would take effect as of May 1, 2020 and would continue indefinitely.

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Tags: Benefits Reductions, Multiemployer Pension Reform Act of 2014, Sheet Metal Workers Pension Fund, Treasury

The Kentucky Retirement System’s (KRS) unfunded liabilities continue to grow, according to a recent report from its actuarial adviser, GRS Retirement Consulting. The system’s unfunded liabilities increased by approximately $2.2 billion over the past year as of June 30, bringing the pension’s funded ratio to approximately 32.8%.

The increase is attributable to “changes in the mortality assumption (longer life expectancy), and employee turnover (less than previously expected),” a spokesperson from KRS told CIO.

“The County Employees Retirement System (CERS) plans had modest declines in funded status due to the fact that we are in a phase-in period for the higher contribution rates that would otherwise have taken effect in July 2018 and will not be complete for three to four more years. Also, the asset return was slightly below the 6.25% assumption,” the spokesperson added. “All of the system’s funded statuses should begin improving and are projected to be fully funded in 2043.” The systems have 24 years remaining in their 30-year amortization schedule.

GRS links the decline in the funded ratio over the last nine years to three factors: “(1) actual contributions being insufficient to finance the unfunded actuarial accrued liability, (2) a decrease in the assumed rate of return in 2015, 2016, and again in 2017, and (3) actual investment experience being less than the investment return assumption.”

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There’s been a few proposed solutions to address the systems’ funded ratio, most recently with legislation (HB 1), passing in a July special session. The bill addressed issues with the pension for 115 quasi-state agencies, the greatest number of which are health departments and regional universities. Gov. Matt Bevin began an overhaul to the pension system this past summer. The measure was limited to the quasi-governmental agencies’ retirement plan, which were 12.9% funded at the time of the law’s passage, leaving four other state pension plans unaffected, but nonetheless severely underfunded. The funded status of the KERS non-hazardous agencies has no impact to the funded status issues of the other state pension plans, the spokesperson added.

However Moody’s responded with a report claiming the pension reform was a negative for the state’s credit rating, “because it pushes costs into the future and raises the likelihood that the state will take responsibility for a greater share of KERS’ unfunded liability.”

Bevin said he wasn’t surprised by Moody’s announcement, and added that its statement only reinforces his sentiment that there’s much work still left to do.

Tags: actuary, funded, Kentucky, Liabilities, Retirement System, unfunded

Treasury Approves Benefits Reduction for Michigan Pension

Sheet metal workers’ union becomes 15th fund to be cleared to cut benefits.

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