Multiemployer (union) plans, for a variety of reasons*, will all go bankrupt. So what happens to promised benefits? The Road Carriers Local 707 Pension Fund (RC707) ** could tell us.
RC707 is one of five multiemployer plans looking to suspend benefits under MPRA. Their application asserts that “the plan is projected to be insolvent by February, 2017” so they are proposing to “reduce all of the Plan participants’ pension benefits to 110 percent of the PBGC guarantee, which are the maximum suspensions allowable under Section 432(e)(9)(D)(i) and the required suspensions for a coordinated partition.”
The most instructive chart from the 8/31/14 valuation report is the asset history:
And what the plan is projecting to avoid insolvency:
The plan reports having $24,485,44 in assets as of 1/31/16. Annual benefit payouts for the plan year ended 8/31/14 were $47,049,132. Exhibit III, the Plan Actuary’s Certification, includes projections where the annual payouts drop to $7,888,424 for the first full year suspensions are in place. Assuming 3,000 retirees that means the average annual payout would drop from $15,683 to $2,629 (an 83% cut).
In conjunction with this filing under MPRA, RC707 is also filing with the PBGC for a ‘coordinated partition’ which is defined in the model notice as:
A multiemployer plan that is in critical and declining status may apply to PBGC for an order that separates (i.e., partitions) and transfers the PBGC-guaranteed portion of certain participants’ and beneficiaries’ benefits to a newly-created successor plan. The total amount transferred from the original plan to the successor plan is the minimum amount needed to keep the original plan solvent. While the Board of Trustees will administer the successor plan, PBGC will provide financial assistance to the successor plan to pay the transferred benefits. PBGC guarantees benefits up to a legal limit. However, if the PBGC-guaranteed amount payable by the successor plan is less than the benefit payable under the original plan after taking into account benefit reductions or any plan amendments after the effective date of the partition, Federal law requires the original plan to pay the difference. Therefore, partition will not further change the total amount payable to any participant or beneficiary.
So what do you think based on all this? As of February, 2017 what, and from whom, will RC707 retirees be getting paid?
* Reasons range from declining participation in unions to the funding method for these plans linked to negotiated contributions based on hours worked of the active population which has diminishing relevancy to plan liabilities.
Plan Name: Road Carriers Local 707 Pension Fund
Total participants @ 8/31/14: 4,600 including:
- Retirees: 2,989
- Separated but entitled to benefits: 776
- Still working: 835
Asset Value (Market) @ 1/1/14: 115,338,672
Value of liabilities using RPA rate (3.61%) @ 9/1/13: $893,583,171 including:
- Retirees: $582,802,691
- Separated but entitled to benefits: $91,563,684
- Still working: $219,216,796
Funded ratio: 12.91%
Unfunded Liabilities as of 8/1/13: $778,244,499
Asset Value (Market) as of 8/31/14: $92,367,455
Contributions 2014 (MB): $7,854,711
Contributions 2014 (H): $6,089,047
Payouts 2014: $47,049,132
Expenses 2014: $1,900,86