Treasury Dept. Approves Benefits Reduction for Two Pension Funds

Total number of funds cleared to enact benefits reductions rises to seven.

The US Treasury Department has approved benefits reductions for The Western States Office and Professional Employees Pension Fund, and the Ironworkers Local 16 Pension Fund.

The Treasury Department has so far approved seven pension fund applications for a reduction in benefits and rejected five under the Multiemployer Pension Reform Act of 2014 (MPRA), with 10 applications currently under review.

For the Western States Office and Professional Employees Pension Fund of Portland, Oregon, the third time was the charm, as it had previously withdrawn two applications for benefits reductions. The plan’s accepted benefit suspension proposal reduces all participants’ benefits earned by 30%, subject to the limitations on benefit suspensions. The suspension does not treat categories or groups of participants and beneficiaries under the plan differently from one another, except when required by law.

The plan was determined to be in critical and declining status for the plan year beginning Jan. 1, 2018, and was projected to become insolvent during the 2036 plan year without the reductions.

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With the reductions, the fund estimates that its funded percentage will rise to 96.54% by the end of 2057, from 63.20% as of the plan year beginning April 1, 2018. Its estimated assets as of April 1 were $330.2 million, against $522.4 million in liabilities.

The recovery plan “will stabilize the pension plan’s finances and allow it to continue to pay benefits to all participants in the future,” said the fund in a notice to participants. “However, a shared sacrifice is required, as most plan participants will see benefit reductions.”

And the second time was the charm for the Ironworkers Local 16 Pension Fund of Towson, Maryland, whose first application for a reduction in benefits was rejected by the Treasury Department in 2016 for failing to satisfy the statutory criteria for approval.

The fund was certified to be in critical and declining status for the plan year beginning Jan. 1, 2017, and had a funding percentage of 64.2% at the time.  The plan’s actuary has determined that if the benefits are not reduced as proposed, the fund will become insolvent in 2032.

The fund’s recovery plan calls for participants’ benefits to be reduced by a fixed percentage, which averages out to a 20% reduction per participant, with older participants receiving a lower reduction, and younger participants receiving a higher reduction on average. The reduction is calculated by multiplying the number of months between age 80 and the participants’ age as of Oct. 1 by a 0.125% reduction rate for retirees and terminated vested participants, and 0.0625% for beneficiaries. Participants 80 years or older as of Oct. 31 will not have their benefits reduced.

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Milwaukee County Retirees Could Lose COLA Increases

Pension reform taskforce recommends cutting 2% adjustments until 2036.

A pension reform task force has suggested eliminating the 2% annual cost-of-living increases received by thousands of Milwaukee County retirees’ until 2036 to help strengthen the county’s struggling pension system.

The Milwaukee Journal-Sentinel reported that the proposal from the Retirement Sustainability Taskforce, which was launched by Milwaukee County Executive Chris Abele, comes as the county’s unfunded liability has grown to at least $550 million. It also said the portion of the payment designated for the unfunded liability alone has risen to $53.23 million in 2018 from $10.23 million in 2012.

The taskforce is made up of representative of employees, organized labor, retirees, the business community, elected leaders, taxpayers, and county officials.  It includes the existing members of the internal county workgroup that started to review the option of joining the state pension. The goal of the taskforce is to study larger pension system modifications and develop recommendations to Milwaukee County on pension system modifications that should be considered. 

The taskforce also suggested that future employees should be covered by the Wisconsin Retirement System instead of the county pension system, and recommended the county study the possibility of also moving recently hired employees who are not yet vested in the county pension system into the state pension system.

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The taskforce will send the proposals to Abele and the Milwaukee County Board.

Moving future and recently hired employees to the state retirement plan would cost $10 million to $15 million, Teig Whaley-Smith, Milwaukee County’s administrative services director, told the Journal-Sentinel. He added that the expense could be offset by the $20 million in savings that would result from eliminating the 2% annual cost-of-living increases automatically given to retirees.

The county pension system’s growing liabilities have been attributed to lower-than-expected returns from pension fund investments. As a result, the county will lower its projected rate of return on investments to 7.75% in 2019, and might lower it even further, according to the Journal-Sentinel.

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