The Multiemployer Pension Reform Act of 2014 gave authority to the most poorly funded plans to reduce promised benefits to retirees. Now, the IRS is asking for help in writing the rules that will make those reductions possible.
"Critical and declining" plans, a new designation created by the law, face imminent insolvency — foreseeable within the next 14 plan years. Theoretically, suspending some benefits will save those plans. But if the IRS's request for comment is any indication of the task ahead for regulators, trustees and affected participants, doing so will be easier said than done.
For starters, the IRS would like to know how a plan determines it is in critical and declining status.
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And just why a plan thinks reducing benefits will put it on sound footing.
Sponsors are also going to have to determine how to separate disability payments, which, under the new law, are not to be touched.
And how will estimates of obligations to current workers be affected by suspensions when the benefit they were scheduled to receive has not even been calculated, and could be affected by factors like early retirement?
Then there is the matter of participants' role in the process. A provision in the law requires plans to notify employees and retirees of their right to vote on a proposed benefit suspension.
The IRS not only needs to establish a framework for how sponsors communicate that to participants, but also, how sponsors arrive at the amount of benefit that will be taken away for each participant.
When participants finally do vote on a proposal, how will those ballots be prepared? Maybe more importantly, how will their results be certified?
And will the entire negotiation process, which is likely to be contentions, given the inherently conflicted parties, be made public?
The law states that Treasury, after consulting with the Pension Benefit Guaranty Corp. and the Department of Labor, will publish its rules on benefit suspensions no later than 180 days after the law's enactment. The clock started ticking Dec. 16, 2014.
The IRS's request for comment will be open for another 40 days or so.
Now the question is can the deadline be met.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
