Citing the threat of future insolvency, a New Jersey Teamsters Local Pension Fund has applied to the U.S. Treasury Department for permission to reduce by 40 percent the vested member benefits in the Fund.
The Fund’s application is the third pension fund reduction application filed by unions in recent months. The Teamsters Local 469 Pension Fund’s Board of Trustees cited a growing concern that the Fund was “in ‘critical’ status, and … projected to become insolvent (that is, not have enough assets to pay benefits) in the year 2029.” The Board of Trustees argued the reduction is necessary to avoid insolvency despite the Fund’s having taken “all reasonable measures” to avoid it.
Multiemployer pension plans may apply for a reduction in vested benefits under the Multiemployer Pension Reform Act of 2014 (“Act”). The Act is aimed at helping pension funds avoid insolvency by proposing alternative solutions. Applications must be designed to help avoid insolvency, but also not be so broad as to seek a greater benefit reduction than necessary.
Under the Act, a pension plan’s Board of Trustees must provide notice to all employers and unions contributing to the plan, as well as plan participants and beneficiaries. Once the Treasury Department approves a reduction, pension fund participants and beneficiaries have the opportunity to vote on the proposal.
Two other multiemployer pension funds recently have applied for similar relief. On December 23, 2015, the Iron Workers Local 17 Pension Fund submitted an application for reduction in benefits, citing apparent insolvency by 2032. Last September, the Teamsters Central States, Southeast & Southwest Areas Pension Fund also submitted an application for a reduction in benefits.
The anticipated effective date of the Teamsters Local Pension Fund benefits reduction is October 1, 2016. A decision from the Treasury Department is expected within the next few months.