The New York Teamsters Road Carriers Local 707 Pension Fund has become insolvent, and is now on life support as the Pension Benefit Guaranty Corporation (PBGC) has begun to provide financial assistance.
The PBGC will help pay the guaranteed portion of pension benefits earned by the fund’s nearly 4,000 participants. The fund, which covers retired and current truck drivers represented by the Teamsters Local Union 707, has been unable to pay full benefits for the past year, and had reduced the benefits to retirees to levels that were supportable by available plan assets, according to the PBGC.
The average guaranteed benefit for current retirees of the fund is $570 per month, which is less than half the average full promised benefit of $1,313 per month. Some 42% of the fund’s retirees and beneficiaries have had their benefits reduced by more than half of their promised benefits. Only 7% of retirees and beneficiaries will receive their full plan-promised benefit amount.
PBGC will initially provide the 707 Fund with $1.7 million per month which, combined with employer contributions and other income, will allow the pension fund to pay retirees’ benefits at the level guaranteed under federal pension law. PBGC said the amount of future financial assistance it will give the fund will vary based on changes in the fund’s income, and cash needs for guaranteed benefit payments and administrative costs.
Despite the cash infusion from PBGC, the organization doesn’t take over administration of insolvent multiemployer plans, and the 707 Fund will continue to administer the plan.
The dire financial condition of the fund has been attributed to several trends, such as a steady decline in participating employers and aggregate employer contributions, increases in plan benefit levels that were not adequately funded, and investment losses suffered in the 2008-2009 financial crisis.
In March of 2016, the fund submitted an application with the US. Treasury Department seeking approval to enact pension benefit reductions under the Multiemployer Pension Reform Act of 2014 (MPRA). Multiemployer plans can submit an application showing that proposed pension benefit reductions are necessary to keep a plan from running out of money.
In its application, the fund had proposed to reduce all plan participants’ pension benefits to 110% of the PBGC guarantee. It also detailed its decades-long struggle to stay fully funded.
“Retention of contributing employers in the plan has been very difficult since the deregulation of the trucking industry in 1980, and the economic and financial crises since 2001,” said the fund in its application. “The plan had been unable to attract any new contributing employers in decades.”
However, the Treasury rejected the fund’s application, saying it “fails to satisfy the statutory criteria for approval of benefit suspensions,” and that “the suspension of benefits is not reasonably estimated to achieve the level that is necessary to avoid insolvency.”
By Michael Katz