The recent Multiemployer Pension Reform Act of 2014 (“MPRA”) is a temporary fix but not a long term solution for a real problem. Many multiemployer plans are severely underfunded in declining industries. They do not have enough active workers to cover the costs of retirees who worked their lives expecting a pension. The guarantee from the PBGC for multiemployer plan participants is much less than the guarantees for other defined benefit plans.
Max. annual guaranty (pensioner with 40 years of service) $17,160
Max. annual guaranty (pensioner with 30 years of service) $12,870
Max. guaranty for non-multiemployer plan (regardless of service)
and if benefit level in effect for only 5 years $60,136
Under MPRA, if a multiemployer plan is in “critical and declining status” it may apply to the Treasury to suspend retiree pensions and to freeze future accruals for active participants. There are some limits – no cut-backs below 110% of the PBGC guaranty level, limited cutbacks for those age 75 or over, and no cutbacks for those over age 80 – but this is a hard knock. MPRA creates tension within a plan. Cutbacks can only go into effect if approved by a majority of participants and beneficiaries (not just a majority of those who vote). The interests of active employees who want to postpone insolvency may not be aligned with older and retired participants whose pensions will be cut when they do not have other income. Joint Boards of Trustees, charged with exercising fiduciary judgment for the plan and all participants, are in an unenviable position
Note: MPRA contains a number of other rules unique to multiemployer plans which are not summarized here.