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GRAND RAPIDS January 4, 2016– In 2014, a law was passed that would allow struggling pension plans to reduce benefits if it would help them remain solvent. There are currently six active applications from pension plans requesting a reduction, and the U.S. Treasury Department has recently issued its first approval– to the Ironworkers Local 17 Pension Fund.
Local 17 is based in northern Ohio.
From the Washington Post:
The proposal, which will reduce benefits by 20 percent on average, must now be voted on by the retirees and workers in the Iron Workers Local 17 Pension fund. If approved, retirees could see smaller pension payments as soon as Feb. 1.
Until now, the agency had denied all other applications to cut retirement benefits submitted under the law. That includes a plan that would have affected nearly 300,000 current and retired truckers in the Central States Pension Fund, one of the largest pension plans in the country, which is on pace to run out of money within 10 years. Kenneth Feinberg, the special master appointed by Treasury to review the proposals, has rejected applications when he found the projections for future investment growth were unrealistic or when the cuts would not be sufficient enough to help the pension plans avoid insolvency.
The iron workers fund, however, met the necessary requirements in its final application, which officials withdrew and resubmitted over the summer. In the revised application, pension leaders used more modest projections for expected investment returns.
[Karen Ferguson, director of the Pension Rights Center] and other opponents of the cuts say the proposal should be rejected to give lawmakers and other authorities more time to come up with an alternative plan for shoring up troubled pension plans. It’s not clear, however, how much Congress will focus on pensions at a time when President-elect Donald Trump has encouraged lawmakers to prioritize health care and tax reform.
Members of the plan have to submit their votes by Jan. 20. A “no” vote from the majority of the plan members cannot be overridden by the Treasury Department.
“The good news here is the final decision rests with the workers,” Sen. Sherrod Brown (D-Ohio) said in a statement.
But some pension advocates worry that not enough participants will cast a vote, since roughly half of the members are exempt from the cuts because of their age or a disability. Under the law, anyone who does not vote will be registered as voting in favor of the proposal.
The leaders of the Iron Workers Local 17 Pension Fund say the cuts are necessary to keep the fund afloat. If no changes are made, the fund is expected to run out of money by 2024. At that point, the pension plan would need to rely on a federal insurance program that is supposed to back up struggling pension plans.
By then, however, there may be no backup plan in place. The multi-employer pension fund for the Pension Benefit Guaranty Corporation, which is meant to back up plans like the Iron Workers fund or the Central States fund, is also running out of money. The program is on track to become insolvent by 2025, if not sooner.