According to the Wall Street Journal article:
It is extremely rare for retirees to ever see reductions in their pension benefit. In most cases, such action is illegal. But a 2014 federal law made it possible for cuts to certain cash-strapped multiemployer plans. The Teamsters’ Central States’ proposed cuts would have slashed some members’ income by 50% or more.
On a media call, Kenneth Feinberg, the star mediator who reviewed the proposal, said he rejected Central States because the overhaul was based on rosy investment return assumptions, uneven cuts among retirees and flawed plan notice to recipients
“We at Treasury do not believe that the plan as submitted will reasonably avoid insolvency,” Mr. Feinberg said.
Specifically, the reasons for the rejection came down to:
- Participant notices being too technical for the layperson (as if Feinberg’s denial letter was any better),
- UPS was heard, and
- the plan laid out was not going to guarantee solvency.
It is number three that is particularly bad news for Central States retirees (whether they realize it now or not).
Feinberg points out that it is required that:
the proposed benefit suspensions, in the aggregate, be reasonably estimated to achieve, but not materially exceed, the level that is necessary to avoid insolvency [and the application was rejected] because the investment return and entry age assumptions used for this purpose are not reasonable…..[since they] have a significant bias in that they are significantly optimistic.
So what would get the application approved?
- Add a few pages to the notices defining more terms;
- Protect all UPS benefits with the same 50% (or higher) cap percentage; and
- With less optimistic assumptions lay out a plan to avoid insolvency that would have to reduce benefits MORE!
The Central States Pension Fund will fail and benefits will be substantially cut. The only question is whether the trustees decide to fire themselves and the people now servicing the plan by going directly to the Pension Benefit Guaranty Corporation (PBGC) under a distress termination which would require maximum benefit cuts for participants and a lot of work for the PBGC (or whoever they farm the business out to) or resubmit the application with a later suspension date and bigger benefit cuts that will likely come close to PBGC maximum limits.