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Newsmakers

Treasury Rejects Benefit Cut Requests from Musicians, Teamsters Pensions

MPRA rejections were the first under Treasury Secretary Mnuchin.
By Michael Katz


The US Treasury Department has denied applications for a reduction in benefits for the American Federation of Musicians and Employers’ Pension Fund and the Teamsters Local 807 Labor-Management Pension Fund in Long Island City, New York. The rejections are the first during Treasury Secretary Steven Mnuchin’s tenure.

The Treasury said it nixed the Musicians pension’s proposal under the Multiemployer Pension Reform Act (MPRA) because the mortality rate and new entrant assumptions it uses “are not reasonable under the standards in the regulations.” It said the mortality assumption used by the pension in its recovery plan is based on a standard table that was used “without adequate justification or a demonstration of the manner in which the table properly reflects the mortality experience of the fund.”

Additionally, it said the fund’s actuary did not take into account relevant historic and current demographic data when selecting the standard table, which it said significantly overestimates the rate at which the plan’s participants and beneficiaries will die.

In response to the rejection, the pension’s trustees said in a letter to the plan’s participants that “we strongly disagree with Treasury staff’s conclusions” and that “Treasury was wrong to deny the application on this basis.” However, it added that “we are encouraged by the fact that Treasury staff advised us verbally that it had no issue with any other elements of our application or our proposed benefit reduction plan.”

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The pension’s trustees had been warned ahead of the official decision by Treasury staff that a recommendation had been made to deny the application and explained the reasons why. The trustees unsuccessfully lobbied Mnuchin to reject the recommendation and approve their application.

“A denial under these circumstances would be arbitrary and capricious, constitute a serious misapplication of administrative authority, and seriously threaten the plan’s viability,” the trustees said in a letter to Mnuchin. “Too much is at stake for this to be the basis of a denial.”

The pension fund supports more than 50,000 active workers, retirees, and beneficiaries, and receives contributions from more than 5,500 employers in the film, recording, symphonic, television, and theater industries. The trustees said they have already started working with their actuaries to prepare and file a second application for a reduction of benefits.

Under the rejected plan, more than 53%, or just over 27,000 participants, would have had no reduction of benefits, while just under 45%, or almost 23,000 participants, would have had their benefits reduced by as much as 19%. Less than 2%, or more than 900 participants, would have had their benefits reduced by between 20% and 40%.

Meanwhile, the Treasury said it rejected the Teamsters Local 807 Labor-Management Pension Fund’s application because the investment return assumptions used in its recovery plan were “not reasonable under the standards in the regulations.”

The Treasury balked at the pension’s use of an investment assumption that incrementally increases throughout the entire extended period to 2062. The assumed investment return for the first year of the extended period is 5.5%, and it rises to 8.1% by the end of the extended period.

“Given that the investment return assumption for the longer term of the extended period is overly optimistic,” wrote MPRA Director Danielle Norris in a letter to the plan’s trustees, “it is not reasonable to arrive at a determination that the proposed suspension is reasonably estimated to avoid insolvency.”

It was the Teamsters pension fund’s second application for a reduction of benefits. It first applied in June 2018, however, a snafu caused by a federal government shutdown in late 2018 and early 2019 caused the pension to reapply.

Under the Teamsters’ rejected pension preservation plan, any pensioner in pay status as of Nov. 1 would have had their benefits reduced by up to 49% as of that date. And the monthly pension benefit payments of any participant or beneficiary who enters into pay status after Nov. 1 would have been reduced by up to 49% for benefits earned through Oct. 31.

Related Stories:

Musicians’ Pension Fund Applies for Benefits Cut

NYC Teamsters Pension Reapplies for Benefits Cuts

Declining Musicians’ Pension Fund Sings the Benefit Reduction Blues

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Home > News > Market Moves > Why 3rd Quarter Earnings Might Just Romp, Sage Predicts
Market Moves

Why 3rd Quarter Earnings Might Just Romp, Sage Predicts

One-shot wonder: New stimulus money and pent-up consumer demand will fuel profits, says economist David Levy. Alas, the 4th period won’t be so hot.
By Larry Light


Earnings in the second quarter have been abysmal. But guess what? There’s a chance that, in the third period, profits might bounce back, although the increase should fade in the last quarter.

That’s the take of David Levy, a far-seeing economist who heads the Jerome Levy Forecasting Center. Assuming the COVID-19 spread doesn’t worsen and Congress passes another round of stimulus, “the third quarter looks like a sweet spot for profits,” Levy wrote in his firm’s latest newsletter. He didn’t put any numbers on what kind of boost he expects.

He called the current quarter, which wraps up Sept. 30, a “one-shot wonder.” And the fourth quarter? Things will slack off again.

To investors, who early on wrote off the second quarter wipeout, an earnings surge, however short-lived, would be welcome. With 89% of S&P 500 companies reporting their June-ending results thus far, profits plunged 33.8%, the second worst showing in history, according to FactSet research. (First quarter 2009 holds the record: down 35.4%.)

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In Levy’s assessment, five factors will propel good profits this quarter:

  • Leftover stimulus. The torrent of federal aid that Capitol Hill enacted in March for individuals and businesses has largely been spent, but a decent amount remains on the sidelines. Indeed, the US has seen a jump in its savings rate, which means a lot of dollars are sitting around waiting to be spent on goods and services. While the federal aid’s effects are fading, Levy argued, “the overall boost in the third quarter will be considerable.”

  • New stimulus. Levy predicted the latest Washington package will be less than the $2.2 trillion enacted in the spring, with $1 trillion likely. The money will arrive this month or September, he said. Extra unemployment compensation—it had been $600 before the benefit expired at July’s conclusion—will be less generous, he noted. Democrats are pushing to extend the previous amount, and some Republicans want to drop it to $400 or maybe $300. President Donald Trump has ordered, in the absence of congressional action, additional jobless aid of $400, with the states picking up $100 of that. Big doubts exist, though, about his authority to mandate this.

  • A business production spurt. Because of the spring business lockdown in many parts of the country, companies are only now getting back to speed. Levy called it “the garden hose effect”: Like a crimped hose that gets straightened out, the built-up water pressure first hesitates, then blasts out of the nozzle.

  • Pent-up consumer spending. Postponed buying is now finding an outlet with businesses reopening. What’s more, he added, “even with reopening stalled or set back in many states, people are finding more ways to get out, entertain themselves, and buy things.”

  • Businesses play catch up with inventory. Thesis: Once they resumed operations, companies first ran down inventories and now must replenish them. For instance, Levy observed “rising orders from building suppliers to replace inventory and meet anticipated demand.”

Certainly, Levy pointed out, the pandemic may grow worse and wage cuts could crimp consumer spending. Then, the third quarter will be better than the second, but fall short of its performance in July-September 2019. And this year’s final quarter? Meh. The effect of the stimulus will have faded by then, Levy warned, so don’t expect much.

Related Stories:

Earnings Will Take Up to 4 Years to Recover, Leuthold Says

How Will Earnings Ever Get Back to Positive?

A Quick Rundown of Retirement-Related Provisions in the Federal Government’s Stimulus Package

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