McClatchy Seeks Bankruptcy

newjerseyglobe reports:

“McClatchy’s Plan provides a resolution to legacy debt and pension obligations while maximizing outcomes for customers and other stakeholders,” said McClatchy CEO Craig Forman.

USA Today reports:

Although bankruptcies can result in pensioners receiving less than they were due, McClatchy said Thursday that it believes its plan “would not have an adverse impact on qualified pension benefits for substantially all plan participants.” In a court filing, McClatchy listed the PBGC as its largest unsecured creditor with a claim of $530 million. The PBGC and a federal judge would have to sign off on the company’s pension plan and sale.

Here are the real reasons for the bankruptcy filing.

Trump Budget On Pensions and PBGC

Ted Godbout at NAPA and ASPPA reviewed the White House’s Office of Management and Budget budget proposal and, as regards retirement policy, the focus was on the Pension Benefit Guaranty Corporation (PBGC).

PBGC Takes On Big Brothers

The Employee Benefits Plan of Big Brothers Big Sisters of Metropolitan Detroit terminated as of September 14, 2018 with the Pension Benefit Guaranty Corporation (PBGC) taking over as trustee on October 7, 2019.

That should have been it as the PBGC would have taken the plan assets (valued at $140,200 as of 12/31/18) and started paying out benefits up to guaranteed limits. However, in this case there is a twist.

Breaking News: First Facilitated Merger Under MPRA

The Pension Benefit Guaranty Corporation (PBGC) today announced its first approved facilitated merger under the Multiemployer Pension Reform Act of 2014 (MPRA). Under this authority, PBGC may provide financial assistance to help merge two multiemployer plans in order to extend the solvency of a financially distressed plan. To help facilitate the merger of the Laborers International Union of North America 1000 Pension Fund (Local 1000 Plan) with the Laborers Local 235 Pension Fund (Local 235 Plan), PBGC will provide three annual installments of $8.9 million to the merged plan beginning this month.

Per the PBGC Q&A:

The merger will help to protect the pension benefits of over 400 participants of the Laborers International Union of North America Local 1000 Pension Fund. Without the merger, the Local 1000 Plan was projected to become insolvent in 2026. The merger will not affect participants and beneficiaries of the Laborers Local 235 Pension Fund.

From their latest 5500 filings:

Sheet Metal Workers Vote (Or Don’t) On Benefit Cuts

After withdrawing their initial application to cut benefits last year, the Sheet Metal Workers Pension Fund of Massillon, OH refiled in March and received approval in November pending a participant vote. Today the MPRA website announced that 328 of all eligible voters who received a ballot voted to reject the benefit reduction while 154 voted to approve the benefit reduction which, according to the rules established for these things, means….

McClatchy Seeks Bailout

McClatchy Co., the third-largest newspaper publisher in the U.S. by circulation, has frozen pension payments to some former executives and enlisted the services of a bankruptcy-administration firm as it seeks a government takeover of its retirement plan, the company’s chief financial officer said – Wall Street Journal

Benefit accruals have been frozen in The McClatchy Company Retirement Plan for years but unfunded liabilities remain – in part due to having to pay PBGC premiums in the $15 million range annually. Based on Schedule SB data the company has not made contributions since 2015, using a dwindling Prefunding Balance as justification for shortchanging the plan.

MARP (12) Compensation Limits

Among the Title III Plan Governance proposals in the Technical Explanation of the Multiemployer Pension Recapitalization and Reform Plan (MARP) is this curious reform:

Under the proposal, multiemployer plans that have successfully partitioned are subject to a 21-percent excise tax on any remuneration in excess of $500,000 paid to covered employees (e.g.,the five highest compensated employees) of the Original Plan and the Successor Plan, for as long as the either the Original or Successor plan remains in Endangered or lower funding status under the revised zone-status rules. The excise tax is calculated in the same manner as under Section 4960 of the Code.

Who could be impacted by this cap?

MARP (11) Union Response

I am now through the first two Titles in the Technical Explanation of the Multiemployer Pension Recapitalization and Reform Plan (MARP) and so are some other people.

Cowden did their own comparison of proposed changes and the AFL-CIO has their take:

The AFL-CIO’s pension panel has roundly condemned proposals made by two leading Senate Republicans to shore up the nation’s endangered multiemployer pension funds that would cut benefits by up to 19%.

The federation’s Retirement Security Working Group said Dec. 2 that the proposals contained in a white paper released Nov. 20 by Finance Committee chair Charles Grassley (R-Iowa) and Sen. Lamar Alexander (R-Tenn.), chair of the Health, Education, Labor and Pensions Committee “will not only injure the retirees and active participants it purports to help, it also will precipitate the collapse of all multiemployer pension plans.”

Then there’s that other sticking point:

MARP (10) Incentive for Mergers

The Technical Explanation of the Multiemployer Pension Recapitalization and Reform Plan (MARP) looks to encourage multiemployer plans to merge because:

Current law generally requires a “Green Zone” plan to restore MPRA benefit suspensions by a critical and declining status plan after a merger of the two plans. Benefit suspensions may be maintained only if a plan is still projected to become insolvent unless benefits continue to be suspended. While the merger of a small weak plan into a Green Zone plan often obviates any further projection of insolvency, additional liabilities resulting from restored benefit suspensions can be a barrier to merger. (page 52)

So to solve that problem…

MARP (9) Withdrawal Liability Rules

The Technical Explanation of the Multiemployer Pension Recapitalization and Reform Plan (MARP) proposes changing the calculation of withdrawal liability because:

Rules governing withdrawal liability are complex and vary by industry. Assessed withdrawal liability very seldom represents the unfunded liabilities of a withdrawing employer. As a consequence, insufficiencies of withdrawal liability have been recognized since the enactment of the MPPAA in 1980 as creating a disincentive for new employers to join a multiemployer defined benefit plan. (pages 48-9)

Being bankrupt might be more of a disincentive but, anyway, here is what would change.