The U.S. Department of Treasury today released proposed andtemporary regulations in support of the implementation of theKline-Miller Multiemployer Pension Reform Act of2014.

The controversial law, passed as part of the government’somnibus spending bill in the waning hours of the last Congress,established a new process for the most critically underfunded multiemployer pensionplans to reduce benefits to existing retirees as ameasure to maintain future solvency.

Under provisions of the Kline-Miller reform act, multiemployerplans are deemed to be in “critical and declining” status if theyexpect to be insolvent in 15 years, or insolvent in 20 years andhave a ratio of inactive-to-active participants exceeding 2 to 1,or are less than 80 percent funded.

Those plans can now reduce retirees’ pension benefits to staveinsolvency but need Treasury’s approval to do so.

In conjunction with the publishing of new regulations in theFederal Register, Treasury Secretary Jack Lew announced theappointment of Kenneth Feinberg as Special Master to oversee thosestressed plans’ applications for benefit reductions.

Previously, Feinberg has held similar appointments, overseeingexecutive compensation of TARP-funded financial institutions afterthe government bailouts of the last recession, and insurance claimsmade after the British Petroleum Deepwater Horizon oil spill in theGulf of Mexico and the September 11 terrorist attacks on New Yorkand Washington D.C.

In a press call, Feinberg said he serves at the discretion ofthe Treasury Secretary and that he will receive no compensation forthe post.

In order for benefit reductions to be approved by Treasury,sponsors will have to prove they have taken all “reasonablemeasures apart from reducing benefits” to avoid insolvency,according to a Treasury representative.

Those measures include increasing sponsor and participantcontributions, and reducing ancillary benefits, like earlyretirement subsidies.

“The statute is clear,” said Feinberg. “I am obligated to followthe law. These plans have a wide-ranging impact on retirees. Thelaw is designed to deal with a very challenging public issue.”

If Treasury approves reductions to previously protectedbenefits, plan trustees will be able to reduce participants’benefits to 110 percent of the benefits guaranteed by thePension Benefit Guaranty Corp.

PBGC guarantees limited benefits to participants in themultiemployer plans it insures. The highest guaranty is about$13,000 annually.

That means under Kline-Miller, if a participant’sPBGC-guaranteed benefit is $1,000 a month, plan trustees would notbe able to reduce benefits below $1,100 per month. Retirees 80 andolder and participants on disability would be exempted from thecuts.

Union-member participants will have the chance to vote downbenefit reductions. But, if they do not agree to the reductions,Treasury can override their vote if the plans are deemedsystemically important, meaning they would require more than $1billion in PBGC assistance were the plans to become insolvent.

According to the latest projections from the PBGC,about 1 million of the 10 million participants inmultiemployer pensions insured by the agency are inplans that are on a path to insolvency.

Last year’s annual report showedPBGC’s multiemployer insurance program holding about $2 billion inassets, against $40 billion in projected liabilities.

PBGC also issued an interim final regulation in accord with theKline-Miller Act.

After plans have reduced benefits, they may be eligible forfurther assistance from PBGC.

The new law grants PBGC the authority to partition a portion ofa plan’s liabilities into a new plan, which would be funded by thePBGC, but only after the benefit reductions have been approved andenacted.

The amount partitioned is limited to the amount needed to keepthe plan from going insolvent, according to a PBGC representative,who was part of the press call with Treasury.

In effect, PBGC would be taking responsibility for some plans’liabilities, but only if doing so proves less costly to the PBGCthan if the plans were to go insolvent.

Also, in order for liabilities to be partitioned, PBGC wouldhave to determine that doing so would not impair its ability toinsure other plans, according to the PBGC rep.

The PBGC representative emphasized partitions will be limited bythe massive debt in the agency’s multiemployer program. Heestimated that about $60 million worth of partitions would beavailable and that about six plans will seek partition in the firstyears of the new program.